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Why Did Smithsonian Agreement Failed To Salvage The Bretton Woods System

The inability of world governments to establish a system in which exchange rates of currencies would be fixed and stable has left no alternative but to have a floating currency market. That is the phase we are going through today. The Forex market, as we know today, is the result of the failure of Bretton Woods and the Smithsonian agreement. Although the Smithsonian agreement was touted by President Nixon as a fundamental reorganization of international monetary affairs, it could not encourage the discipline of the Federal Reserve or the U.S. government. The price of the dollar on the gold-free market continued to put pressure on its official price; And shortly after the announcement of a 10% devaluation on 14 February 1973, Japan and the OEEC countries decided to let their currencies fluctuate. A decade later, all industrialized countries had done the same. [4][6] The Smithsonian Agreement became necessary when the United States stopped President Richard Nixon in August 1971 to allow foreign central banks to exchange dollars for gold. A sharp rise in the inflation rate in the United States in the late 1960s had made the system unstable and encouraged a shift towards currencies and gold at the expense of the U.S. dollar. President Nixon`s move triggered a crisis that led to an International Monetary Fund call for negotiations between the Group of Ten (G-10).

These negotiations, in turn, led to the Smithsonian Agreement in December 1971. The shift from the global monetary system from the gold standard to modern foreign exchange markets has been far from smooth. Governments around the world have worked together to conclude two pacts that would form the basis of the modern monetary system. Both agreements, however, have failed. In this article, we will take a closer look at these regulations. The status of the dollar as a world reserve currency was cemented after World War II by the Bretton Woods Conference of 1944, during which 44 countries approved the creation of the IMF and the World Bank. (Some economists have argued that the dollar had already overtaken the British pound [PDF] as the first reserve currency in the mid-1920s.) Bretton Woods created an exchange rate system in which each country maintained the value of its currency to the dollar, which itself had to be converted to gold at a rate of $35 per ounce. This should ensure stability and prevent the currency wars of the 1930s – a reaction to the Great Depression – that caused the gold standard to be abandoned and their currencies devalued to gain a competitive advantage.

In the end, the Smithsonian Agreement extended Bretton Woods` lifespan by just over a year. In March 1973, the resumption of the strong outflows of the dollar in 1971 led to a suspension of foreign exchange exchanges for almost three weeks. At the time of the reopening, the main currencies fluctuated on each other. The Bretton Woods system was dead. Cryptocurrencies. Tech evangelists dream of a world where cryptocurrencies like bitcoin replace government-backed currencies. These digital currencies are “dismantled” and transferred via a decentralized network of computers without a issuing authority. Supporters argue that such a system would prevent countries from printing money because the supply of cryptocurrencies is limited, much like the gold standard.

But this would limit a government`s political options in times of crisis. In addition, cryptocurrencies have depreciated sharply, reducing their attractiveness. Yet some countries are experimenting with their own digital currencies. Situation: European countries fought during the Second World War. As such, the world`s economies had been destroyed. Many countries had money to finance the war spending of the humungous. As a result, once the war is over, many European economies risk imploding simply because their money markets are unstable.