Smithsonian Agreement Slideshare

The Smithsonian Agreement was a temporary agreement negotiated in 1971 between the world`s top ten industrialized countries, namely Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States. The agreement made adjustments to the system of fixed exchange rates established under the Bretton Woods agreement and effectively created a new standard for the dollar, as other industrialized countries link their currencies to the United States dollar. The deal devalued the U.S. dollar by 8.5 percent against gold, raising the price of an ounce of gold from $35 to $38. The other G10 countries have agreed to revalue their currencies against the U.S. dollar. President Nixon hailed the deal as “the most important monetary deal in the history of the world.” In the early 1980s, the value of the U.S. dollar rose, driving up U.S. export prices, thereby increasing the trade deficit. To address the imbalances, five of the world`s largest economies met in September 1985 to find a solution.

The five countries were Great Britain, France, Germany, Japan and the United States; This group was known as the Group of FiveThe top five industrial powers – Britain, France, Germany, Japan and the United States – which met to reduce and stabilize the value of the dollar. The 1985 agreement, called the plaza accord because it was held at the Plaza Hotel in New York, focused on reducing the value of the U.S. dollar through a collective effort. The gold standard has significantly reduced exchange rate risk by setting fixed exchange rates between currencies. The fluctuations were relatively small. This has made it easier for global companies to manage costs and prices. International trade has increased around the world, although economists do not always agree on whether the gold standard was an essential part of this trend. Later that year, member countries secured the Smithsonian Agreement, which devalued the U.S. dollar to US$38 per ounce of gold, increased the value of other countries` currencies against the dollar, and increased a currency`s fluctuation band from 1 percent to 2.25 percent. . . .

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