On December 14, President Nixon visited the Azores to meet with French President Pompidou. The two heads of state agreed on the devaluation of the dollar and, as stated in the communiqué issued after their meeting, “the contribution that vigorous implementation of measures to restore wage and price stability and productivity in the United States would contribute to the international balance and defence of the new dollar.” This new public recognition of the need to restore internal cost and price stability has further paved the way for agreement on a reorientation of exchange rates. This provision seemed weak on paper. But under pressure from real-world markets, it has completely collapsed. The U.S. trade deficit continued to worsen and, as a result, the value of gold rose to $210 in 1972 per ounce. As a result, all G10 members abandoned the Smithsonian agreement. This ended with the closing of forex markets for a while! The problems of the Fund`s operations, referred to by Mr. Schweitzer, have already been described in Chapters 12 and 17.
In short, the Fund`s financial transactions and transactions were hampered by three circumstances. On the one hand, widespread anticipation of a future increase in the price of gold and SDRs in terms of currencies has led members to reduce their commitments to the Fund and avoid a decrease in their SDR portfolios and reserve positions in the Fund. Second, exchange rates for almost all currencies that the Fund would use in subscriptions and repurchases and other transactions as part of its regular procedures were not effectively maintained within the exciting margins set out in the Fund`s articles or decisions, and the decision on fluctuating currencies had only been applied to the three currencies that fluctuated before 15 August. As a result, purchases and repurchases made on the general account could not be made in a customary manner on the basis of agreed nominal values or provisional exchange rates, and transactions in the Special Drawing Account could not be made on the basis of representative exchange rates.133 In the absence of agreed convertibility rules , members may have difficulty using currencies they held in their reserves. happen. which could not be accepted by the Fund when acquiring other currencies necessary for their operations with the Fund. In addition, in the absence of agreement on the values to be used for currencies and gold, there was a problem in assessing the Fund`s assets. The lack of gold to meet global international reserve requirements in the 1960s was an important factor that led to the Smithsonian agreement. However, this agreement became mandatory in 1971, when then-US President Richard Nixon banned the exchange of U.S. dollars for gold. The Smithsonian agreement was signed by a group of ten countries commonly known as G10. The Smithsonian Agreement was an agreement signed in 1971 by ten major industrialized countries to settle international compensation and international trade at this time.
The agreement provided for a change in the fixed exchange rates set out in the Bretton Woods Agreement of 1944. When the smithsonian agreement was signed in 1971, it created a new standard for the U.S. dollar, in which the currencies of the other nine countries that signed the agreement were indexed to the U.S. dollar. At the time of the negotiation, some observers saw the Smithsonian agreement as an important step in international monetary diplomacy. However, the reaction of many currency experts was reticent: they feared that the partial appreciation of the nominal value system would not be a sustainable solution without any guarantees. The agreed exchange rates are expected to last less than 14 months.