1971 December
Smithsonian Agreement of the Group of Ten. Heralded
by American President Richard Nixon as "the most significant
monetary agreement in the history of the world", the Smithsonian
Agreement was a series of agreements signed in December 1971
in Washington, DC. As part of this agreement, the American government
agreed to revalue the dollar against gold and several countries
altered their central rate against the dollar. The three documents
excerpted here include the Group of Ten's Ministerial press
communiqué and the IMF's Executive board decision on
central rates both of 18 December 1971, and an IMF press release
providing member states with information on the new exchange
rate regime dated 30 December 1971.
***
Document A. Press communiqué of the Ministerial
Meeting (18 December 1971)
Ministerial Meeting of Group of Ten
1 The Ministers and Central Bank Governors of the ten countries
participating in the General Arrangements to Borrow met at the Smithsonian
Institution in Washington on December 17 and 18, 1971, in executive
session, under the Chairmanship of Mr J.B. Connally, the Secretary
of the Treasury of the United States Mr P.-P. Schweitzer, the Managing
Director of the International Monetary Fund, took part in the meeting,
which was also attended by the President of the Swiss National Bank,
Mr E. Stopper, and in part by the Secretary-General of the Organization
for Economic Cooperation and Development, Mr E. van Lennep, the
General Manager of the Bank for International Settlements, Mr R.
Larre, and the Vice-President of the Commission of the European
Economic Community, Mr R. Barre The Ministers and Governors welcomed
a report from the Managing Director of the Fund on a meeting held
between their Deputies and the Executive Directors of the Fund
2 The Ministers and Governors agreed on an interrelated set of measures
designed to restore stability to international monetary arrangements
and to provide for expanding international trade These measures
will be communicated promptly to other governments It is the hope
of the Ministers and Governors that all governments will cooperate
through the International Monetary Fund to permit implementation
of these measures in an orderly fashion
3 The Ministers and Governors reached agreement on a pattern of
exchange rate relationships among their currencies These decisions
will be announced by individual governments, in the form of par
values or central rates as they desire. Most of the countries plan
to close their exchange markets on Monday. The Canadian Minister
informed the Group that Canada intends temporarily to maintain a
floating exchange rate and intends to permit fundamental market
forces to establish the exchange rate without intervention except
as required to maintain orderly conditions.
4. It was also agreed that, pending agreement on longer-term monetary
reforms, provision will be made for 2¼ per cent margins of
exchange rate fluctuation above and below the new exchange rates.
The Ministers and Governors recognized that all members of the Intel
national Monetary Fund not attending the present discussions will
need urgently to reach decisions, in consultation with the International
Monetary Fund, with respect to their own exchange rates. It was
the view of the Ministers and Governors that it is particularly
important at this time that no country seek improper competitive
advantage through its exchange rate policies. Changes in panties
can only be justified by an objective appraisal which establishes
a position of disequilibrium.
5. Questions of trade arrangements were recognized by the Ministers
and Governors as a relevant factor in assuring a new and lasting
equilibrium in the international economy. Urgent negotiations are
now under way between the United States and the Commission of the
European Community, Japan, and Canada to resolve pending short-term
issues at the earliest possible date, and with the European Community
to establish an appropriate agenda for considering more basic issues
in a framework of mutual cooperation in the course of 1972 and beyond
The United States agreed to propose to Congress a suitable means
for devaluing the dollar in terms of gold to $38.00 per ounce as
soon as the related set of short-term measures is available for
Congressional scrutiny. Upon passage of required legislative authority
in this framework, the United States will propose the corresponding
new par value of the dollar to the International Monetary Fund
6. In consideration of the agreed immediate realignment of exchange
rates, the United States agreed that it will immediately suppress
the recently imposed 10 per cent import surcharge and related provisions
of the Job Development Credit.
7. The Ministers and Governors agreed that discussions should be
promptly undertaken, particularly in the framework of the International
Monetary Fund, to consider reform of the international monetary
system over the longer term It was agreed that attention should
be directed to the appropriate monetary means and division of responsibilities
for defending stable exchange rates and for insuring a proper degree
of convertibility of the system; to the proper role of gold, of
reserve currencies, and of special drawing rights in the operation
of the system; to the appropriate volume of liquidity; to reexamination
of the permissible margins of fluctuation around established exchange
rates and other means of establishing a suitable degree of flexibility;
and to other measures dealing with movements of liquid capital.
It is recognized that decisions in each of these areas are closely
linked.
---
Document B. IMF Executive Board Decision (18 December 1971)
Preamble
This decision is adopted by the Executive Directors in order to
indicate practices that members may wish to follow in present circumstances
consistently with Article IV, Section 4(a) and Board of Governors
Resolution No. 26-9, which called on all members to collaborate
with the Fund and with each other in order to maintain a satisfactory
structure of exchange rates within appropriate margins. The decision
is intended to enable members to observe the purposes of the Fund
to the maximum extent possible during the temporary period preceding
the resumption of effective par values with appropriate margins
in accordance with the Articles.
Paragraph 1. Par Values and Wider Margins
(a) A member will be deemed to be acting in accordance with Article
IV, Section 4(a) and Resolution No. 26-9 if it takes appropriate
measures, consistent with the Articles, to permit spot exchange
transactions between its currency and the currencies of other members
taking place within its territories only at rates within 2¼
per cent from the effective parity relationship among currencies
as determined by the Fund, provided that these margins may be within
4½ per cent from the said relationship if they result from
the maintenance by the member of rates within margins of 2¼
per cent from the said relationship for spot exchange transactions
between its currency and its intervention currency.
(b) A member that avails itself of wider margins under (a) above
shall notify the Fund. Paragraphs 5 and 6 of this decision shall
then apply to the member.
(c) A member's intervention currency means a currency which the
member represents to the Fund that it stands ready to buy and sell
in order to perform its obligations regarding exchange stability.
Paragraph 2. Central Rates
(a) A member which temporarily does not maintain rates based on
a par value for its currency in accordance with Article IV, Section
3 and Decision No. 904-(59/32) but, by means of appropriate measures
consistent with the Articles, maintains a stable rate as the basis
for exchange transactions in its territories may communicate to
the Fund a rate for its currency for the purposes of this decision.
This rate or a rate subsequently communicated in accordance with
this paragraph shall take effect as the central rate for the purposes
of this decision unless the Fund finds it unsatisfactory.
(b) A central rate for a member's currency may be communicated in
gold, units of special drawing rights, or another member's currency.
Paragraph 3. Central Rates with Wider Margins
A member that communicates a central rate under paragraph 2(a) and
avails itself of the wider margins of paragraph 1(a) on the basis
of its central rate shall notify the Fund, and if the Fund has not
found the central rate unsatisfactory the member will be deemed
to be acting in accordance with Article IV, Section 4(a) and Resolution
No. 26-9 if it takes appropriate measures, consistent with the Articles,
to permit spot exchange transactions between its currency and the
currencies of other members taking place within its territories
only at rates within 2¼ per cent from the central rate, provided
that these margins may be within 4½ per cent from the central
rate if they result from the maintenance by the member of rates
within margins of 2¼ per cent from the central rate for spot
exchange transactions between its currency and its intervention
currency. In addition, paragraphs 5 and 6 shall apply.
Paragraph 4. Central Rates without Wider Margins
If a member that communicates a central rate under paragraph 2(a)
does not notify the Fund under paragraph 3 that it avails itself
of the wider margins of that paragraph, the member shall take appropriate
measures to ensure that the margins on either side of the central
rate for exchange transactions between its currency and the currencies
of other members taking place within its territories shall be no
wider than the equivalent of the margins of Article IV, Section
3 and Decision No. 904-(59/32).
Paragraph 5. Multiple Currency Practices and Discriminatory Currency
Arrangements
Notwithstanding paragraphs 1 and 3 above, no member shall permit,
except as approved or authorized under Article VIII, Section 3 or
Article XIV, Section 2,
(i) a spread between the buying and selling rates for spot exchange
transactions between its currency and the currencies of other members
in excess of 2 per cent, or
(ii) (1) a difference between buying or between selling rates for
spot exchange transactions between its currency and the currency
of another member, or
(2) a relationship among the buying rates, or among the selling
rates, for the currencies of other members,
that the Fund regards as inconsistent with promotion of exchange
stability, the maintenance of orderly exchange arrangements with
other members, and the avoidance of competitive exchange alterations.
Paragraph 6. Intervention
Appropriate measures for the purposes of paragraphs 1(a), 2(a),
and 3 above shall include intervention by a member's authorities
in the exchange markets within the member's territories in order
to maintain rates for spot exchange transactions in accordance with
this decision. In their intervention in exchange markets members
shall refrain from actions incompatible with the purposes of the
Fund.
Paragraph 7. Members Maintaining Narrow Margins Against an Intervention
Currency
(a) A member will be deemed to be acting in accordance with Article
IV, Section 4(a) and Board of Governors Resolution No. 26-9, if
(a) the rate for its currency is maintained consistently with the
Articles or the member's Membership Resolution, (b) the member permits
transactions between its currency and its intervention currency
only within margins of 1 per cent of the said rate in terms of the
intervention currency, and (c) the intervention currency is the
currency of a member which maintains rates within margins consistent
with this decision.
(b) Subparagraph (a) shall apply to a member in respect of the separate
currency of a territory under Article XX, Section 2(g) for which
margins of 1 per cent are maintained for transactions between the
separate currency and the metropolitan currency.
Decision No. 3463-(71/126)
December 18, 1971
---
Document C. IMF press release on exchange rates (30 December 1971)
Information on Exchange Rates
In connection with the current realignment of exchange rates, member
countries have notified the Fund of their action with respect to
par values, central rates, and wider margins. The Fund has acted
on these notifications as necessary. The tables below summarize
the notifications.
As indicated in the tables, many members have decided that they
will continue to maintain unchanged the par values of their currencies
in terms of gold. Some members have proposed changes in their par
values which have been acted upon by the Fund, while considerably
more members have communicated central rates for their currencies.
The majority of all these members have indicated that they are availing
themselves of the wider margins of up to 2¼ per cent, under
the provisions of the decision establishing a temporary regime of
wider margins and central rates.
In addition to these notifications with respect to the maintenance
of par values, establishment of central rates, and use of wider
margins, other members have also notified the Fund of their exchange
rate practices. These members are not availing themselves of wider
margins of up to 2¼ per cent, and the overwhelming majority
are maintaining their exchange rates unchanged in terms of their
intervention currency. A large group of members, all of whose exchange
rates are agreed under their membership resolutions, have maintained
their rates fixed in terms of French francs. These include Dahomey,
Ivory Coast, Malagasy Republic, Mauritania, Niger, Senegal, Togo,
and Upper Volta. Algeria has similarily maintained its exchange
rate. Those that had effective par values prior to August 15, 1971
and are maintaining their exchange rates unchanged in terms of U.S
dollars include China, El Salvador, Iran, Liberia, Nepal, and Thailand.
Many other members have also maintained their exchange rates unchanged
in terms of U.S. dollars or have free markets, including Argentina,
Brazil, Canada, Chile, Costa Rica, Ecuador, Egypt, Indonesia, Korea,
Lebanon, Pakistan, Paraguay, Peru, Philippines, Sudan, Syrian Arab
Republic, Viet-Nam, and Yemen Arab Republic. Venezuela made a small
appreciation of 2.28 per cent in its rates in terms of U.S. dollars.
Parity rates and central rates are expressed in the tables in terms
both of the national currency rate for the U.S. dollar and the U.S.
dollar rate for the national currency on the basis of the relative
exchange rates of, currencies resulting from the realignment. Central
rates have been expressed in U.S. dollar terms even though some
members have expressed them in other terms. The percentage change
in terms of U.S. dollars refers to the percentage change in the
amount of U.S. dollars required to purchase a unit of national currency
and is calculated on the basis of the parities in effect on May
1, 1971.
Some members have not yet notified the Fund definitely of the action
they intend to take with respect to exchange rates, and it is planned
to provide this information at a later date.
I. PAR VALUES MAINTAINED UNCHANGED
Currency Units per U.S. Dollar
U.S. Dollars per Currency Unit
Australia*
0.822370
1.21600
Barbados
1.84211
0.542857
Cyprus*
0.383772
2.60571
Ethiopia*
2.30263
0.434285
France*
5.11570
0.195477
Gambia, The
1.91886
0.521143
Iraq*
0.328947
3.04000
Ireland*
0.383772
2.60571
Jamaica*
0.767544
1.30286
Kuwait
0.328947
3.04000
Libyan Arab Rep.*
0.328947
3.04000
Malawi
0.767544
1.30286
Malaysia
2.81955
0.354666
Morocco*
4.66098
0.214547
New Zealand*
0.822370
1.21600
Nigeria*
0.328947
3.04000
Rwanda*
92.1053
0.010857
Saudi Arabia
4.14475
0.241269
Sierra Leone
0.767544
1.30286
Singapore*
2.81955
0.354666
Somalia
6.57894
0.152000
Spain*
64.4737
0.0155102
Tunisia*
0.483552
2.06803
United Kingdom*
0.383772
2.60571
United Kingdom: Hong Kong
5.58213
0.179143
* Member is availing itself of the wider margins
of up to 2 1/4 per cent.
1
The change in the rates from May 1971 represents an appreciation
of 8.57 per cent in terms of the U.S. dollar.
II. PAR VALUES CHANGED
|
Currency Units per U.S. Dollar
|
U.S. Dollars per Currency Unit
|
Percentage Change in Terms of U.S. Dollars
|
Botswana2 |
0.750000
|
1.33333
|
- 4.76
|
Ghana* |
1.81818
|
0.550000
|
- 43.88
|
Kenya* |
7.14286
|
0.140000
|
0.00
|
Lesotho2 |
0.750000
|
1.33333
|
- 4.76
|
South Africa |
0.750000
|
1.33333
|
- 4.76
|
Swaziland2 |
0.750000
|
1.33333
|
- 4.76
|
Tanzania* |
7.14286
|
0.140000
|
0.00
|
Uganda* |
7.14286
|
0 140000
|
0.00
|
Yugoslavia* |
17.0000
|
0.0588235
|
4-11.76
|
Zambia* |
0.714286
|
1.40000
|
0.00
|
Netherlands: Surinam* |
1.78876
|
0.559047
|
+5.43
|
United Kingdom: Bahama Islands |
0.969999
|
1.03093
|
+3.09
|
* Member is availing itself of the wider margins
of up to 2 ¼ per cent.
2 The currency is the South African rand.
III. MEMBERS WHICH HAVE ESTABLISHED CENTRAL RATES
|
Central Rate Expressed in Terms of U.S.
Dollars
|
U.S. Dollars per Currency Unit
|
Percentage Change in Terms of U.S. Dollars
|
Austria* |
23.3000
|
0.0429185
|
+11.593
|
Belgium* |
44.8159
|
0.0223135
|
+1157
|
Burma* |
5.34870
|
0.186961
|
-10..97
|
Denmark* |
6.98000
|
0.143266
|
+7.45
|
Dominican Rep. |
1.00000
|
1.00000
|
0.00
|
Finland* |
4.10000
|
0.243902
|
+2.44
|
Germany* |
3.22250
|
0.310318
|
+13.58
|
Greece* |
30.0000
|
0.0333333
|
0.00
|
Guyana* |
2.00000
|
0.500000
|
0.00
|
Haiti |
5.00000
|
0.200000
|
0.00
|
Honduras |
2.00000
|
0.500000
|
0.00
|
Iceland |
88.0000
|
0.0113636
|
0.00
|
India* |
7.27927
|
0.137376
|
+3.03
|
Israel* |
4.20000
|
0.238095
|
- 16.673
|
Italy* |
581.500
|
0.00171969
|
+7.48
|
Japan* |
308.000
|
0.00324675
|
+16.88
|
Jordan* |
0.357143
|
2.80000
|
0.00
|
Luxembourg* |
44.8159
|
0.0223135
|
+11.57
|
Malta* |
0.374412
|
2.67086
|
+11.29
|
Mexico |
12.5000
|
0.0800000
|
0.00
|
Netherlands* |
3.24470
|
0.308195
|
+11.57
|
Nicaragua |
7.00000
|
0.142857
|
0.00
|
Norway* |
6.64539
|
0.150480
|
+7.49
|
Panama |
1.00000
|
1.00000
|
0.00
|
Portugal* |
27.2500
|
0.0366972
|
+5.50
|
Sweden* |
4.81290
|
0.207775
|
+7.49
|
Turkey* |
14.0000
|
0.0714286
|
+7.14
|
Zaire* |
0.500000
|
2.00000
|
0.00
|
Netherlands: Netherlands Antilles |
1.79000
|
0.558659
|
+5.35
|
* Member is availing itself
of the wider margins of up to 2¼ per cent.
3 Includes the changes in par values since May 1, 1971.
* * *
Source: The relevant press releases and IMF Executive
Board decision can be found in International Monetary Fund, International
Financial News Summary, Vol. XXIII, No. 50 (December 22-30, 1971),
pp. 417-421.
|