Forex Investment and Currency Trading

In December 1971, the Group of Ten met at the Smithsonian Institution in Washington, D.C., and created the Smithsonian Agreement, which devalued the dollar to $38 per ounce with trading allowed up to 2.25 percent above or below that value. Dollars could not be used to convert directly to gold. Instead, the Group of Ten officially adopted the SDR system, and the IMF held the responsibility of keeping the system in balance.

The United States continued its deficit spending, and the value of the U.S. dollar continued to fall. Gold’s value began floating on the international markets, and its value gradually edged up to $44.20 per ounce in 1971 and $70.30 per ounce in 1972. Countries abandoned any peg to the U.S. dollar and let their currencies flat. By 1976, all the developed countries’ currencies were floating, and exchange rates were no longer the primary way governments administered monetary policy.

Today the currencies of developed countries float, but many of the emerging countries still peg the value of their currency to the U.S. dollar or to a basket of currencies from a number of countries.