There was a need for a system that fixed currencies relative to each
other, but did not fix each currency in terms of gold. The Bretton
Woods agreement solved this problem by requiring that each country fix
the value of its currency in terms of an anchor currency, namely thedollar (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 sys-
tem, 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.