DEFINITION of 'Smithsonian Agreement '

An agreement reached by a group of 10 countries (G10) in 1971 that effectively ended the fixed exchange rate system established under the Bretton Woods Agreement. The Smithsonian Agreement reestablished an international system of fixed exchange rates without the backing of silver or gold, and allowed for the devaluation of the U.S. dollar. This agreement was the first time in which currency exchange rates were negotiated.

BREAKING DOWN 'Smithsonian Agreement '

The Smithsonian Agreement led to an approximately 8% devaluation of the U.S. dollar, and raised the price of gold from $35 to $38. The agreement was praised by then-U.S. President Richard Nixon as "the most significant monetary agreement in world history." However, the par value system began to lose its popularity in 1972-1975, and economic forces compelled several countries to switch.

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