Smithsonian Agreement - Investment & Finance Definition
An agreement, announced in December, 1971, that created a new dollar standard whereby the major currencies of the mostly-highly industrialized nations were pegged to the dollar at central rates, with the currencies being allowed to fluctuate by 2.25 percent. The Smithsonian Agreement by the Group of Ten (G-10) nations (Belgium, Canada, France, Germany, Italy, Japan, the Nether-lands, Sweden, the United Kingdom, and the United States) raised the price of gold to $38, up from $35, which was the price at which the U.S. government promised to redeem dollars for gold. In effect, the changing gold price devalued the dollar by 7.9 percent.
Several months after the agreement was announced, it began to unravel, as the dollar and some European currencies were hit by traders and speculators. Fifteen months after the Smithsonian Agreement was negotiated, the price of the dollar again was devalued by 10 percent to $42.22 per troy ounce of gold. In March 1973, the G-10 nations announced that they would let their currencies float.