In The Bretton Woods Agreement One Ounce Of Gold Was Set Equal To
The agreement could not promote discipline from the Federal Reserve or the U.S. government. The Federal Reserve was worried about a rise in the domestic unemployment rate due to the depreciation of the dollar. In an attempt to undermine the efforts of the Smithsonian agreement, the Federal Reserve lowered interest rates in order to pursue a predefined domestic policy goal of full domestic employment. With Smithsonian`s agreement, member countries expected dollars to return to the United States, but lower interest rates inside the United States led dollars to continue flowing from the United States to foreign central banks. The entry of dollars into foreign banks continued the process of monetizing the dollar abroad and thwarted the goals of the Smithsonian agreement. They could, for example, link its value to the currency of another country or a basket of currencies, or simply let it fluctuate freely and allow market forces to determine its value against the currencies of other countries. The use of the US dollar as a global currency has become a source of concern. Nixon reduced the value of the dollar and reduced it to 1/38 of an ounce of gold, then to 1/42. When the value fell, people tried to convert their dollars into gold while waiting for further changes. All attempts to maintain engagement collapsed in November 1968 and a new political program attempted to transform the Bretton Woods system into an enforcement mechanism in which gold loyalty was to float set either by fiat policy or by limiting the honor of foreign accounts. .