Smithsonian Agreement

Once upon a time, the nations of the land (many dozens of them) all got together and established a new international monetary system via the Bretton Woods Agreement. All currencies would be pegged to the mighty U.S. dollar, and the mighty U.S. dollar pegged to the price of gold. And everybody was happy.

Less than thirty years later, this agreement was falling apart. All the economies grew, and grew, and grew...but what didn’t grow? The supply of gold. Well, it grew a little, but not nearly fast enough. Suddenly, it didn’t make sense to have the U.S. dollar pegged to gold and everyone pegged to the U.S. dollar. What’s a world of nations to do?

Bitcoin! Er...okay. Maybe not.

The Smithsonian Agreement was the solution for a short time. It was negotiated between the U.S., the U.K, Canada, Germany, France, Japan, Italy, Belgium, Sweden, and the Netherlands in 1971. This facelift to the Bretton Woods Agreement edited the previous exchange rates, including devaluing the U.S. dollar by 8.5% relative to gold after a bout of U.S. inflation.

Welp, the agreements set forth in the Smithsonian Agreement didn’t last long. Sometimes, currencies just grow apart, you know? You just can’t force a relationship that’s not working. Just two years after the Smithsonian Agreement, most major currencies were using a floating exchange rate relative to the U.S. dollar, rather than fixed. Nixon officially unpegged the U.S. dollar from the price of gold, putting a nail in the coffin of the Gold Standard.