Smithsonian Agreement
From Wikipedia, the free encyclopedia
- For similar uses and terms, see Smithsonian (disambiguation).
The Smithsonian Agreement was a December 1971 agreement that ended the fixed exchange rates established at the Bretton Woods Conference of 1944.
[edit] History
The Bretton Woods Conference of 1944 established an international fixed exchange rate regime in which currencies were pegged to the United States dollar, which was based on the gold standard.
By 1970, however, it was clear that the exchange rate regime was under threat, as the United States dollar was greatly overvalued because of heavy American spending on Lyndon B. Johnson's Great Society and the Vietnam War. The American economy was also coming under serious inflationary pressures.
In response, on August 15, 1971, Richard Nixon had the United States unilaterally devalue the United States dollar. The United States then entered negotiations with its industrialized allies to appreciate their currencies.
Meeting in December 1971 at the Smithsonian Institution, the Group of Ten signed the Smithsonian Agreement. In the Agreement, the countries agreed to appreciate their currencies against the United States dollar.
The Smithsonian Agreement ended the world's fixed exchange rate regime and replaced it with a floating exchange rate regime.
