Question

The agreement that ended the era of fixed exchange rates for the major economies was called the

- Smithsonian Agreement II.

- Bretton Woods Agreement.

- Louvre Accord.

- Smithsonian Agreement I.

Answer 1

Option A.

• In 1973, the era of fixed exchange rates in the major economies ended due to the Smithsonian agreement II.
• When Smithsonian agreement started in 1971, a new currency standard and new exchange rates emerged.
• This slowly lead to the devaluation of currencies that were pegged to US dollar.
• Hence these currencies were slowly allowed to fluctuate by 2% rather than being fixed or pegged to the US dollar.
• By 1973, the idea of major currencies being pegged to the US dollar was completely eliminated.