How did the original Bretton Woods exchange-rate system work?

The Bretton Woods system was a postwar monetary framework established at the 1944 Bretton Woods Conference to stabilize global trade and prevent the economic volatility seen during the interwar period.12

Under this system, member countries agreed to maintain "fixed but adjustable" exchange rates. The U.S. dollar served as the world’s principal reserve currency, with its value pegged to gold at $35 per ounce; the United States committed to maintaining this price by buying or selling gold to other central banks. Other nations expressed their exchange rates in terms of the U.S. dollar and maintained these "official" rates by buying or selling dollars in foreign exchange markets.1

The International Monetary Fund (IMF) was created to supervise this regime. It provided a mechanism for countries with temporary balance-of-payments deficits to borrow foreign currencies, allowing them to avoid destructive policies like competitive devaluations or strict exchange controls. If a country faced persistent deficits or surpluses, the agreement allowed for adjustments to its exchange rate. This system effectively placed the world on a "dollar standard" until its collapse in 1971.12