3 ms·
> why was a multi-country agreement needed to change the value of the US dollar to gold? By that time, as the article you linked to notes, redemption of US dol
by pdonis 5y ago
> why was a multi-country agreement needed to change the value of the US dollar to gold?
By that time, as the article you linked to notes, redemption of US dollars to gold at $35 per ounce had already been suspended by Nixon. I was in error before when I said there had not been any such redemption possible since the FDR administration suspended it in 1933; Bretton Woods did re-establish that in 1944 (though IIRC it was at a different conversion rate than before 1933, so it was effectively a devaluation of the dollar).
The Smithsonian Agreement itself was about exchange rates of other currencies relative to the dollar; it was made because those other countries realized that the US had already gone off the gold standard (when Nixon suspended redemption), and they were trying to make the best out of the situation that they could.
> This limitation was one of the contributing factors of turning a market crash and economic downturn into deflation and the Great Depression. See James and Bernanke (1991)
While this might be true given that the Fed had already been given the power to manipulate the money supply, that does not mean it would not have been better still to not manipulate the money supply at all, and for the government to have simply done nothing after the stock market crash of 1929--as it did after market crashes in 1920 and 1987, neither of which led to prolonged recession or depression.
As for the more general point that printing money and "pumping" it into an economy can generate economic activity, that is of course true, but that does not mean doing that is the best way to generate economic activity. Moreover, being forced to do it in response to a crisis that was caused by government interference in the economy to begin with, which has been the case in every instance I'm aware of where fiat money or paper currency was involved, is not a good argument for it being a good idea.