Smithsonian Agreement 1971

This provision seemed weak on paper. However, it collapsed under pressure from real-world markets. The U.S. trade deficit continued to rise, and as a result, the value of gold rose to $210 per ounce in 1972. As a result, all members of the G-10 abandoned the Smithsonian agreement. This ended with the forex markets closing for a while! CEO Opening Remarks, Summary Proceedings, 1971, pp. 8-15. The quotations are at pp. 12 and 13-14 respectively. On December 14, President Nixon flew to a meeting with French President Pompidou in the Azores. The two heads of state agreed on the devaluation of the dollar and, in the words of the communiqué issued after their meeting, on „the contribution that the vigorous implementation by the United States of measures to restore wage-price stability and national productivity would make to the international balance and to the defense of the new exchange rate of the dollar.“ This new public recognition by the United States of the need to restore internal cost and price stability helped pave the way for an agreement on a reorientation of exchange rates. The Finance Ministers and Central Bank Governors of the Group of Ten met again in Washington less than two weeks later, on 26 September 1971, the day before the opening of the annual session, but again no agreement was reached. The trade discussions that might take place, whether the United States would withdraw the market before new parities were negotiated, and the new parities agreed upon were issues that were the subject of heated discussion.

EU officials insisted on new parities. The French monetary authorities, in particular, insisted that the price of the gold dollar be changed. The remarks made by Mr. Connally (United States) at a press conference following the meeting of the Group of Ten on 26 September showed that the United States had a different view. In accordance with the procedures established by this group for the rotation of the Chair, Mr. Connally had just succeeded Mr. Benson as Chair for the coming year. He described „the gold issue“ above all as a „political problem, not an economic one“, and instead of a „hasty decision on parities“, he proposed a „general plan of its own“ of the main exchange rates (specific with regard to the absence of official intervention in the foreign exchange markets). By mid-November, the prospects for reaching an agreement on a currency between the Group of Ten countries were better.

== The authorities had drawn up trade agreements with Canada and Japan, which they considered satisfactory. In addition, as Mr. Schweitzer pointed out to the UNITED States authorities, other Group of Ten countries (all but the United States) were in favour of changing the price of gold in dollars, at least in part, in order to improve RSD as an international reserve value. In addition, countries that were not part of the Group of Ten became increasingly troubled by the extension of the existing situation and the UN General Assembly had adopted a resolution calling for measures to alleviate the international monetary situation. . . .