The informal system of swap arrangements provides for a mutual agreement between central banks on custodial loans to help countries overcome difficulties in the event of large movements of money. These are only intended to offset private international capital flows on precautionary or speculative accounts, not even to finance temporary deficits in countries` balances of payments. Organised on an ad hoc and informal basis, they depend on the mutual goodwill and trust of the participating central banks. The credit system, although informal, should be seen as important because it is of great importance. Almost the entire meeting took place during the executive meeting, when ministers and governors agreed on a model of exchange rate relations between their currencies. At the time it was negotiated, some observers viewed the Smithsonian agreement as a milestone in international monetary diplomacy. However, the reaction of many monetary experts was cautious: they feared that the partial guarantee of the value system without any guarantee would offer a lasting solution. The agreed exchange rates should last less than 14 months. Nevertheless, the agreement was important because, for the first time in international monetary history, it negotiated the exchange rates of the major industrialized countries at a conference table. The problems associated with the Fund`s operations, referred to by Mr Schweitzer, have already been described in Chapters 12 and 17. In short, the Fund`s financial operations and operations have been hampered by three circumstances. First, the widespread expectation of a rise in the future price of gold and foreign currency RDS prompted members to reduce their debt to the Fund and avoid a decrease in their CSD stocks and reserve positions in the fund. Secondly, the exchange rates of almost all the currencies that the Fund would use for drawings, redemptions and other transactions under its regular procedures were not effectively maintained within the margins established in accordance with the articles or decisions of the Fund, and the decision on fluctuating currencies was applied only to the three currencies that were variable before 15 August.
1971. As a result, purchases and redemptions in the general account could not be made in the usual manner on the basis of agreed nominal values or provisionally agreed exchange rates and transactions in the special drawing account.1This, in the absence of agreed convertibility agreements, members might find it difficult to use the currencies they held in their reserves, but which could not be accepted by the Fund when acquiring other currencies necessary for their operations with the Fund. In addition, without agreement on the values to be used for currencies and gold, there was a problem in the valuation of the Fund`s assets. . . .