In December 1971, an international monetary conference was held to
realign the foreign exchange values of the major currencies. The
Smithsonian agreement provided for a change in the dollar per gold
exchange value from $35 to $38.02 per ounce of gold. At the same time
that the dollar was being devalued by about 8 percent, the surplus coun-
tries saw their currencies revalued upward. After the change in official
currency values the system was to operate with fixed exchange rates
under which the central banks would buy and sell their currencies to
maintain the exchange rate within 2.25 percent of the stated parity.
Although the realignment of currency values provided by the
Smithsonian agreement allowed a temporary respite from foreign
exchange crises, the calm was short-lived. Speculative flows of capital
began to put downward pressure on the pound and lira. In June 1972,
the pound began to float according to supply and demand conditions.
The countries experiencing large inflows of speculative capital, such as
Germany and Switzerland, applied legal controls to slow further move-
ments of money into their countries.