Explain The Breton Woods System Of Exchange Rate?

The major economists of the 1940s, particularly John Keynes were greatly affected by the economic crisis of the prewar period. They were determined to avoid the economic chaos and competitive devaluations that had occurred during the Great Depression.
Under the intellectual leadership of Keynes, nations gathered in 1944 at Breton Woods, and hammered out an agreement that led to the formation of the major economic institutions. For the first time, nations agreed upon a system for regulating international financial transactions. Even though some of the rules have changed since 1944, the institutions established at Breton Woods continue tom play a vital role today.


By creating a fixed but adjustable system, the designers of Breton Woods hoped to have the better of two worlds. They could maintain the stability of the gold standard; a world in which exchange rates would be predictable from one month to the next, thereby encouraging trade and capital flows. At the same time, they would simulate the adjustment of the flexible exchange rates, under which persistent relative price difference among countries could be adjusted to by exchange rates changes rather than by the painful deflation and unemployment necessary under the gold standard.