1. Global Trade and the Foreign Exchange Market - The Broad Vision Matters
Before entering the inter-banking world and reviewing the negotiation processes, we will take a second look at some of the underlying economic principles of the modern history of world trade and capital flows, partly covered in the previous chapter, and see why these facts are still important today.

As we have seen in chapter A01, the representatives of 44 different nations that met at the Bretton Woods conference in 1944 were determined to improvise a system that would prevent further depressions from occurring and guarantee a fair and orderly market for cross-border commercial transactions. . Most countries agreed that international economic instability was one of the main causes of World War II, and that a new system was necessary to facilitate the reconstruction process.

At that time the United States was not willing to pay with its surplus the debt of the countries ruined by the war. And these, in turn, did not want to depend forever on the US economy. As a result, a halfway agreement was reached: the conference produced a new exchange rate system that was partly a gold exchange system and also a currency reserve system, with the US dollar as the world's reserve currency. 
While in the early 1970s many economists supported the idea that gold-dollar parity was not the best regime for a growing international economy, a free float exchange rate system was not seen as favorable as it could end in competitive devaluations, destroying cross-border trade and, ultimately, leading to a global depression. The Smithsonian Agreement was an attempt to reestablish a fixed exchange rate system, but without the backing of gold.

The value of the dollar could fluctuate in a range of 2.25%, unlike the previous range of 1% in the case of Bretton Woods. However, this agreement also finally failed. Under heavy speculative attacks, the price of an ounce of gold skyrocketed to $ 215, the US trade deficit continued to rise and the dollar, therefore, could be devalued beyond the band of 2.25% set in the agreement. Because of this, the currency markets were forced to close in February 1972.

The currency markets reopened in March 1973, when the Smithsonian Agreement was already history. The value of the dollar would be determined by market forces, and would not be limited to a fluctuation band nor would it be linked to any other asset. This allowed the dollar and other currencies to adjust to the world economic reality and paved the way for a period of inflation never before seen in modern times.

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References: https://www.youtube.com/watch?v=zhEukjCzXwM
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