The new economic system required an accepted vehicle for investment, trade and payments. Unlike economies, however, the international economy does not have a central government that issues currencies and manages their use. In the past, this problem had been solved by the gold standard, but the architects of Bretton Woods felt that this option was not feasible for post-war political economy. Instead, they set up a system of fixed exchange rates managed by a number of newly created international institutions that used the US dollar (which was a gold standard currency for central banks) as a reserve currency. The Bretton Woods conference led to the creation of the IMF and IBRD (now the World Bank), which were still powerful forces in the global economy until the 2020s. The Bretton Woods rules, set out in the treaty articles of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provide for a system of fixed exchange rates. The rules also aimed to promote an open system by requiring members to convert their respective currencies into other currencies and to free trade. The U.S. dollar was the currency with the greatest purchasing power and the only currency covered by gold. In addition, all the European nations involved in World War II were heavily indebted and transferred large amounts of gold to the United States, a fact that contributed to the supremacy of the United States. Thus, the US dollar has appreciated sharply in the rest of the world, becoming the key currency of the Bretton Woods system. The agreement created the World Bank and the International Monetary Fund (IMF), U.S.-backed organizations to oversee the new system.
Member States were allowed to adjust their exchange rate by 1%. This tended to restore the balance of their trade by increasing their exports and reducing imports. This would only be permissible if there is a fundamental imbalance. . . .