Since The End Of The Fixed Exchange Rate System Of The Smithsonian Agreement
Some of the bases are wrong (p, w, r, Y, e). The first best policy is the devaluation of the USD. All other measures, such as lowering interest rates, are the second. All trading operations between Member States should be at a rate that varied around the nominal values of each currency in the 1% range (which corresponds approximately to the gold import/export points). The Bretton Woods agreement was a complex, gold-based system that began to dissolve in the 1960s, when the global gold stock was no longer sufficient to meet global demand for international reserves. The Smithsonian agreement led to a partial devaluation of the US dollar, but it was not enough to address the underlying problems of the Bretton Woods agreement and it took only 15 months before the broader system collapsed. The collapse of the Bretton Woods system did not cause chaos like the collapse of the international gold standard in the 1930s. President Nixon hailed the deal as "the most important monetary deal in the history of the world." 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 Smithsonian agreement proved to be only a temporary solution to the international monetary crisis. A second devaluation of the dollar (by 10%) was announced in February 1973, and soon after, Japan and the EEC countries decided to let their currencies fluctuate freely. At the time, these measures were considered temporary measures to deal with speculation and capital transfers; But this was the end of the system of established nominal values. When the Bretton Woods system developed, most countries` reserves became a mixture of gold and dollars. Over time, the U.S. dollar has become increasingly important. President Nixon`s decision to "close the golden window" was the end of the U.S. commitment to set a fixed price for gold. The US dollar was now a Fiat currency.
The decisions completed the abandonment of the gold standard that began in the early 1930s, when Congress passed a joint resolution prohibiting creditors from demanding repayment in gold. Then-President Franklin D. Roosevelt ordered individuals to return high-denomination gold and gold certificates to the Federal Reserve at a fixed price. SDR, as international foreign exchange assets, plays a limited role due to its small amount compared to the daily trading volume (about $5 trillion) in the foreign exchange market.. . .