2 Things That Resulted From The Smithsonian Agreement

For a few years, staff in the Fund`s research department had developed a multilateral exchange rate model (merm) to analyze the impact of exchange rate changes on external trade flows.3 In early 1971, the stick began to use the model closely to study the impact of the exchange rate reorientation of major currencies on international cash flows and calculations for exchange rate changes in 11 currencies of the countries. Group of Ten and Switzerland, which would correct existing current account imbalances. In addition to monetary adjustment, finance ministers and central bank governors in the Group of Ten agreed, as part of the Smithsonian agreement, to provide 21.4% of exchange rate fluctuations above and below new parity ratios, pending agreement on longer-term monetary reforms. Ministers and governors also agreed to begin talks without delay, including within the framework of the Fund, to consider reform of the international monetary system. particular attention should be paid to the appropriate means and the distribution of responsibilities for defending stable exchange rates and guaranteeing currency convertibility; The role of gold, reserve currencies and SDRs in the system; The right amount of cash Consideration of allowable fluctuation margins around established parities and other means of achieving exchange rate flexibility; measures to deal with the volatility of capital movements. 1. The United States authorities informed the International Monetary Fund, in a letter to the Minister of Finance, that “as of August 15, 1971, the United States no longer buys and sells gold for the settlement of international transactions, pursuant to Article IV, paragraph 2, paragraph b). The United States will continue to work with the Fund to promote exchange rate stability, maintain orderly exchange agreements with other members and avoid competitive exchange rate changes.┬áThe Fund notes that foreign exchange transactions have taken place within the United States outside the limits of Article IV, Section 3, and that the actions taken by the United States authorities do not currently guarantee that transactions between their currency and those of other members in their territory take place only within the limits set out in Article IV. Section 3. 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. To avoid such an outcome, all the countries of the world where all leading leaders and economists held a conference in Bretton Woods in the United States.