The system dissolved between 1968 and 1973. In August 1971, US President Richard Nixon announced the “temporary” suspension of the convertibility of the dollar into gold. While the dollar struggled within the parity set at Bretton Woods for most of the 1960s, this crisis marked the collapse of the system. An attempt to revive fixed exchange rates failed, and in March 1973 the major currencies began to fluctuate against each other. On August 15, 1971, the United States unilaterally ended the convertibility of the U.S. dollar into gold, thus ending the Bretton Woods system and turning the dollar into fiat currency.  At the same time, many fixed currencies (such as the pound sterling) also fluctuated freely. Nixon`s speech, which was a success at home, shocked many people abroad, which she saw as a disturbing act of unilateralism; Connally`s assertive conduct of subsequent exchange rate negotiations with her foreign counterparts did little to dispel these concerns. Nevertheless, after months of negotiations under the Smithsonian Agreement of December 1971, the Group of Ten (G-10) agreed to a new set of fixed exchange rates based on a devalued dollar. Although Nixon described it as “the most important monetary agreement in the history of the world,” the exchange rates set in the Smithsonian Agreement did not last long. Fifteen months later, in February 1973, speculative market pressures led to a further depreciation of the dollar and another set of exchange rate parities. A few weeks later, the dollar again came under heavy pressure on the financial markets; This time, however, there would be no attempt to support Bretton Woods.
In March 1973, the G-10 approved an agreement in which six members of the European Community united their currencies and fluctuated collectively against the US dollar, a decision that effectively signalled the abandonment of the Bretton Woods system of fixed exchange rates in favour of the current system of variable exchange rates. The agreement could not promote discipline from the Federal Reserve or the U.S. government. The Federal Reserve was concerned about an increase in the domestic unemployment rate due to the depreciation of the dollar. To undermine the smithsonian agreement`s efforts, the Federal Reserve lowered interest rates to meet a predetermined national goal of full national employment. With the Smithsonian agreement, member countries expected dollars to return to the United States, but the reduced interest rates in the United States meant that dollars continued to flow from the United States to foreign central banks. The influx of dollars into foreign banks continued the process of monetizing the dollar abroad and thwarted the goals of the Smithsonian agreement. As a result, the price of the dollar on the gold-free market continued to exert pressure on its official rate; Shortly after the announcement of a 10% devaluation in February 1973, Japan and the EEC countries decided to let their currencies fluctuate.
This turned out to be the beginning of the collapse of the Bretton Woods system. The end of Bretton Woods was officially ratified in 1976 by the Jamaica Agreement. In the early 1980s, all industrialized countries used fluctuating currencies.   The main instrument used by the Fed to protect gold holdings was the swap network. It is designed to protect U.S. gold holdings by temporarily offering an alternative to the conversion of their dollar holdings into gold by foreign central banks. In a typical swap transaction, the Federal Reserve and a foreign central bank would conduct simultaneous and balanced spot and forward transactions, usually at the same exchange rate and interest rate. The Federal Reserve`s swap line increased from $900 million to $11.2 billion between March 1962 and the closing of the gold window in August 1971 (see Figure 2 and Bordo et al. 2015). The agreement was reached by 730 delegates, who were representatives of the 44 allied nations who attended the summit. Delegates used the gold standard as part of the agreement, in the simplest terms, the gold standard is a system used to understand the value of money, and this means that a currency is compared to how much it is worth in gold and at what rate it can be exchanged for gold.
to create a fixed exchange rate. It was precisely such a race on the dollar, as well as growing evidence that the overvalued dollar undermined the country`s trade position, prompting President Richard M. Nixon to act. On August 13, 1971, Nixon convened a meeting of his top economic advisers, including Treasury Secretary John Connally and Bureau of Management and Budget Director George Shultz, at Camp David to discuss a program of action. Notable absentees from the meeting were Secretary of State William Rogers and Assistant to the President for National Security Affairs Henry Kissinger. After two days of talks, Nixon announced his new economic policy in a speech to the nation on the evening of August 15 on the theme “The Challenge of Peace.” Arguing that the progress made in ending U.S. involvement in the Vietnam War meant it was time for Americans to meet the challenges of a post-Vietnam world, Nixon identified a triple task: “We need to create more and better jobs; we must stop the rise in the cost of living; we must protect the dollar from attacks by international currency speculators. To achieve the first two objectives, it proposed tax cuts and a 90-day freeze on prices and wages; To reach the third, Nixon ordered the suspension of the dollar`s convertibility into gold. It also ordered the imposition of an additional duty of 10% on all imports subject to customs duties; Like the suspension of the convertibility of gold from the dollar, this measure should encourage the United States` major trading partners to adjust the value of their currencies upwards and the level of their trade barriers downwards to allow more imports from the United States. The Bretton Woods system is a set of uniform rules and guidelines that have provided the framework for the establishment of fixed exchange rates.
Essentially, the agreement required the newly created IMF to set the fixed exchange rate for currencies around the world. Each country represented has taken responsibility for maintaining the exchange rate, with incredibly tight margins up and down. Countries struggling to stay within the fixed exchange rate window could ask the IMF for an interest rate adjustment, which would then be the responsibility of all allied countries. The Bretton Woods countries chose not to give the IMF the power of a global central bank. Instead, they agreed to contribute to a fixed pool of national currencies and gold that would be held by the IMF. Each country that is a member of the Bretton Woods system would then have the right to borrow what it needs as part of its contributions. The IMF was also responsible for the implementation of the Bretton Woods agreement. On a larger scale, however, the agreement united 44 countries from around the world and brought them together to resolve a growing global financial crisis. It has helped strengthen the global economy as a whole and maximized gains from international trade.
In 1971, the United States suffered massive stagflation – a combination of inflation and recession that causes unemployment and low economic growth. In 1971, more and more dollars were printed in Washington and then pumped overseas to pay for government spending on military and social programs. In the first six months of 1971, $22 billion in assets fled the United States. In response, on August 15, 1971, Nixon issued Executive Order 11615 under the Economic Stabilization Act of 1970, which unilaterally closed 90 days of wage and price controls, a 10% import surtax and, most importantly, “the gold window,” which prevented the dollar from being converted directly into gold. except on the free market. Exceptionally, this decision was made without consulting members of the international monetary system or even its own State Department, and was quickly called the Nixon shock. Post-war world capitalism suffered from a huge shortage of dollars. The U.S. had huge trade surpluses, and U.S.
reserves were huge and growing. This river had to be reversed. Although all countries wanted to buy U.S. exports, the dollars had to leave the U.S. and become available for international use to do so. In other words, the US should reverse the imbalances in global wealth by running a trade deficit caused by an outflow of US reserves to other countries (a US). .