What is meant by the Bretton Woods Agreement?

In order to preserve economic stability and full employment in the industrial world, the post-war international economic system was established. To execute the same, the United Nations Monetary and Financial Conference was held in July 1944 at Bretton Woods in New Hampshire, USA. The Bretton Woods Conference established the International Monetary Fund (IMF) to deal with external surpluses and shortages in its member nations. The International Bank for Reconstruction and Development (popularly known as the World Bank) was set up for financial post-war reconstruction, and it started its financial operations in 1947.

Under the agreement, currencies were pegged to the price of gold, and the US dollar was seen as a reserve currency linked to the price of gold. Decision-making authority was given to the Western industrial powers. The US was given the right to veto over key IMF and World Bank decisions. The Bretton Woods System was based on fixed exchange rates. The Bretton Woods System opened an era of unique growth of trade and income for the Western industrial nations and Japan.