President Nixon took the world out of the gold standard in 1971. He feared, however, that free market operations on foreign exchange markets in many currencies would lead to necessity and devaluation. As a result, he convinced many countries to enter into an agreement called the Smithsonian Agreement. This agreement had largely failed since it lasted less than a few years and ended with the total suspension of the foreign exchange markets! Welp, the agreements stipulated in the Smithsonian agreement did not last long. Sometimes currencies diverge, you know? You can`t force a relationship that doesn`t work. Only two years after the Smithsonian Agreement, most major currencies used a variable exchange rate against the U.S. dollar and non-fixed. Nixon officially disconnected the U.S. dollar from the price of gold and put a nail in the coffin of the gold standard. This provision seemed weak on paper. But under pressure from real-world markets, it has completely collapsed.

The U.S. trade deficit continued to worsen and, as a result, the value of gold rose to $210 in 1972 per ounce. As a result, all G10 members abandoned the Smithsonian agreement. This ended with the closing of forex markets for a while! The Smithsonian Agreement was an agreement signed in 1971 by ten major industrialized countries to settle international compensation and international trade at this time. The agreement provided for a change in the fixed exchange rates set out in the Bretton Woods Agreement of 1944. When the smithsonian agreement was signed in 1971, it created a new standard for the U.S. dollar, in which the currencies of the other nine countries that signed the agreement were indexed to the U.S. dollar. The inability of world governments to establish a system in which exchange rates of currencies would be fixed and stable has left no alternative but to have a floating currency market.

That is the phase we are going through today. The Forex market, as we know today, is the result of the failure of Bretton Woods and the Smithsonian agreement. www.managementstudyguide.com/bretton-woods-agreement-and-smithsonian-… The Smithsonian Agreement was a revision of the 1944 Bretton Woods Agreement, which aimed to change fixed exchange rates. This agreement has also contributed to the emergence of Forex markets. As a result of the Smithsonian agreement, the U.S. dollar depreciated partially because it was tied to the currencies of the countries that signed the agreement.