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. Many of the tenacious economic institutions we see today were created as a result of the Bretton Woods agreement. Institutions such as the International Monetary Fund (IMF) and the World Bank were created as a result of this agreement. 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! On December 14, President Nixon visited the Azores to meet with French President Pompidou. The two heads of state agreed on the devaluation of the dollar and, as stated in the communiqué issued after their meeting, “the contribution that vigorous implementation of measures to restore wage and price stability and productivity in the United States would contribute to the international balance and defence of the new dollar.” This new public recognition of the need to restore internal cost and price stability has further paved the way for agreement on a reorientation of exchange rates.
At the time of the negotiation, some observers saw the Smithsonian agreement as an important step in international monetary diplomacy. However, the reaction of many currency experts was reticent: they feared that the partial appreciation of the nominal value system would not be a sustainable solution without any guarantees. The agreed exchange rates are expected to last less than 14 months. Nevertheless, the agreement had significance, as it negotiated, for the first time in international monetary history, the exchange rates of the major industrialized countries around a conference table. With regard to the procedure, Mr Schweitzer considered that the agreement of the major industrialized countries was the first essential step. He was convinced that finance ministers and central bank governors from the Group of Ten countries should not wait for their meeting scheduled for September 26 in Washington, D.C., the Sunday before the opening of the Annual Meeting of the Fund`s Board of Governors. He felt that it would be too late if the Fund could take appropriate action through the governors of all Member States. That is why he would insist that the Group of Ten meet earlier. The question of when the Group of Ten would meet could not be decided by the Fund, but Mr. Schweitzer informed the Executive Directors that he had informed the Canadian Minister of Finance, Mr.
Benson, then Chairman of the Group of Ten, of his firm belief that Mr. Benson should call such a meeting. The finance ministers and central bank governors of the Group of Ten met again, less than two weeks later, on 26 September 1971, the day before the opening of the annual meeting, but again no agreement was reached. What could be talked about in terms of trade, if the United States cancelled the market before the negotiation of new parities and what new parities would be agreed, were issues that were still hotly debated. European officials have been pushing for new parities. The French monetary authorities, in particular, have insisted on a change in the price of the gold dollar. Mr. Connally (United States) said at a press conference after the Group of Ten meeting on 26 September showed that the United States disagrees. In accordance with the procedures set out by this group for the rotation of the presidency, Mr.