All these new relationships became effective within a week of the Smithsonian agreement. The Canadian dollar continued to fluctuate. The agreed exchange relations are summarized in Table 17. Some members have introduced two stock markets. France, for example, did so effective on 23 August 1971. The official market was reserved for commercial and commercial transactions as well as government exchanges; these transactions should be carried out at rates based on face value. For all other authorized transactions, mainly capital transactions, a separate market – the financial market – has been created; these rates should be at floating rates. Capital flows to France amounted to nearly $1.5 billion between the end of 1970 and the end of July 1971. In order to prevent these flows, the French authorities had already taken a number of national measures, including the introduction of exchange controls for certain capital transactions and the removal of interest on short-term deposits of non-residents.
Fourteen members of the Fund, members of the French franc zone, who were doing business with the French Treasury, set up dual foreign exchange markets comparable to those of France. Other countries, such as Argentina, Ecuador and the Netherlands, have also established secondary markets for capital transactions on which exchange rates should be determined by supply and demand. Although the purchase card is preferred for most micro-purchases (less than $3,500), the Smithsonian enters into unit framework agreements (UBAs) with creditors who do not accept the purchase card. When setting up a UBA, the unit gives the potential creditor an order describing deliveries or services, the personalauthorized to place the order, and imposes a limit of dollars for each order. Smithsonian units have the right to establish their own UBAs to the unit with annual cost limitations per agreement. The Director of OCON-PPM has entrusted the authority to more than 500 commercial and contract agents in Smithsonian museums, research centres and offices (known as the Smithsonian Units). Any transfer of power is written and includes administrative and dollar restrictions. Purchases of restricted items or items exceeding the limits of the delegate dollar must be awarded by OCON-PPM, but unit purchasing staff remain responsible for the details of the agreement, including the search for qualified creditors and the call for prize tenders. The Smithsonian agreement, touted by President Nixon as the “biggest monetary agreement in world history,” was even more wobbly and less solid than the 1920s gold exchange standard or Bretton Woods. Indeed, once again, countries around the world have committed to maintaining fixed exchange rates, but this time without gold or the world currency, to give any monetary support.
In addition, many European currencies have been fixed against the dollar at undervalued parities; the only concession used to be a slight depreciation of the official dollar at $38 per ounce. But although far too little and too late, this devaluation was significant to violate an endless cycle of official U.S. statements that had pledged to keep the $35 rate forever. Finally, the $35 price was implicitly recognized as not buried on stone tables. With regard to the procedure, Mr Schweitzer considered that the agreement of the major industrialized countries was the first essential step. He was convinced that finance ministers and central bank governors from the Group of Ten countries should not wait for their meeting scheduled for September 26 in Washington, D.C., the Sunday before the opening of the Annual Meeting of the Fund`s Board of Governors.