The agreement devalued the U.S. dollar by 8.5% against gold and increased the price of one ounce of gold from $35 to $38. Other G10 countries also agreed to revalue their currencies against the U.S. dollar. President Nixon hailed the agreement as «the most important monetary agreement in the history of the world.» The Smithsonian Agreement was an 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 reoriented the fixed exchange rate system established under the Bretton Woods Agreement and effectively created a new standard for the dollar, with other industrialized countries tying their currencies to the U.S. dollar. Later that year, Member States reached the Smithsonian Agreement, which devalued the U.S. dollar at $38 per ounce of gold, increased the value of other countries` currencies against the dollar and increased a currency`s fluctuation margin from 1% to 2.25%. This agreement has always been based on the fact that the U.S. dollar is the strong reserve currency and lingering concerns about high inflation and trade deficits continued to weaken confidence in the system. Countries have gradually left the system – in particular Germany, the United Kingdom and Switzerland, all of which have begun to let their currencies fluctuate freely against the dollar. The Smithsonian agreement was an inadequate response to economic challenges; By 1973, the idea of fixed exchange rates was over.
«The challenge,» writes Ngaire Woods in his book The Globalizers: The IMF, the World Bank, and Their Borrowers, «was to reach an agreement between states on how to finance post-war reconstruction, stabilize exchange rates, promote trade and prevent balance-of-payments crises from unravelling. Ngaire Woods, Globalizers: The IMF, the World Bank, and Their Borrowers (Ithaca, NY: Cornell University Press, 2006), 16. In the early 1980s, the value of the U.S. dollar increased, pushing up U.S. export prices, increasing the trade deficit. To address 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 became known as the Group of Five the five largest industrial powers originally – Britain, France, Germany, Japan and the United States – which met to reduce and stabilize the value of the dollar. The 1985 agreement, called Plaza Accord because it took place at the Plaza Hotel in New York, focused on reducing the value of the U.S. dollar through joint efforts.
Fixed exchange rates are sometimes considered blocked rates. One of the determining factors that led to the fall of the gold standard was that, after the United Kingdom res resting its commitment to maintain the value of sterling, countries attempted to attach it to the US dollar.