dollar (this established the “par” value of each currency and was to ensure
parity across currencies). The U.S. dollar was the key currency in the system, and $1 was defined as being equal in value to 1/35 ounce of gold. Since
every currency had an implicitly defined gold value, through the link to
the dollar, all currencies were linked in a system of fixed exchange rates.
Nations were committed to maintaining the parity value of their currencies within 1 percent of parity. The various central banks were to
achieve this goal by buying and selling their currencies (usually against the
dollar) on the foreign exchange market. When a country was experiencing difficulty maintaining its parity value because of balance of payments
disequilibrium, it could turn to a new institution created at the BrettonWoods Conference: the International Monetary Fund (IMF). The IMF was
created to monitor the operation of the system and provide short-term
loans to countries experiencing temporary balance of payments difficulties.
Such loans are subject to IMF conditions regarding changes in domestic
economic policy aimed at restoring balance of payments equilibrium.