Bretton Woods System : The Meaning as International Monetary System
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From the wikipedia article:
The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate (± 1 percent) by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well.
1) Bretton Woods required the participants to maintain a monetary policy that resulted in a relatively stable exchange rate.
2) Below the international coordination of exchange rates was a gold standard.
3) supporting the system was the IMF's ability to make temporary loans to assist countries to fulfill their obligations.
Why is this important? Because it is international coordination to maintain stable exchange rates and to prevent devaluation/deflation. If I go much beyond that, I enter the realm of rhetoric (it is difficult for me to conceal my contempt for currency based on specie, and this is not the appropriate venue for my bile.)
To fully understand Bretton Woods, you're going to need to understand monetary policy, and the dangers of deflation. The best short summary is that the amount of currency in a country must be coupled to the amount of production - if one country outproduces another, currency will flow to the producing country. Prior to Bretton Woods, this had been solved by arbitrage, but there are some undesirable features of arbitrage.
Monetary policy without coordination can result in a "race to the bottom" phenomenon in everyone looses; the winner merely loses less. Coordinating monetary policy avoids this failure mode.
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Source: stackoverflow.com
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