Nixon`s speech was a success at home and shocked many people abroad, whom they saw as an act of troubling unilateralism; Connally`s strong conduct of subsequent foreign exchange negotiations with his foreign counterparts did little to allay those fears. Nevertheless, after months of negotiations, the Group of Ten Industrialized Democracies (G10) agreed to a new set of fixed exchange rates focused on a devalued dollar in the Smithsonian Agreement of December 1971. Although Nixon was described by Nixon as „the most important monetary agreement in the history of the world,“ the exchange rates set by the Smithsonian agreement did not last long. Fifteen months later, in February 1973, speculative pressure on the market led to a further depreciation of the dollar and a new set of exchange rate parities. A few weeks later, the dollar was again under pressure in the financial markets; But this time there would be no attempt to support Bretton Woods. In March 1973, the G-10 approved an agreement whereby six members of the European Community merged their currencies and swam together against the U.S. dollar, a decision that effectively indicated the abandonment of the Bretton Woods fixed exchange rate system in favour of the current variable exchange rate system. Below is a brief summary of why global economies were part of the Bretton Woods system, how the system worked, why it failed, and what impact the agreement had on the development of the international monetary system. Modern economists can draw a perspective and insight from the discovery of their profession`s past. Despite its name, the World Bank has not been (and is) not the central bank of the world. At the time of the Bretton Woods agreement, the World Bank was created to lend to European countries devastated by the Second World War.
The World Bank`s focus has changed in lending to economic development projects in emerging countries. As part of the agreement, countries promised that their central banks would maintain fixed exchange rates between their currencies and the dollar. If a country`s monetary value became too low against the dollar, the bank would buy its currency back on the foreign exchange markets. , U.S.-backed organizations that would oversee the new system. The agreement did not put in place provisions to create international reserves. It expected that a new gold production would suffice. In the event of a structural imbalance, it expected national solutions, such as adjusting monetary value or improving a country`s competitive position by other means. However, the IMF had few resources to promote such national solutions. The Bretton Woods Agreement was launched in 1944 at a conference of all allied nations of the Second World War. It took place in Bretton Woods, New Hampshire. The Bretton Woods countries have decided not to give the IMF the power of a global central bank.
Instead, they agreed to contribute to a solid pool of national currencies and gold, which would be held by the IMF.