This system established a monetary system that was based on the United States dollar. It also created the International Monetary Fund and the World Bank. Under the original provisions of the agreement, all countries fixed their currencies in terms of gold but were not required to exchange their currencies. Only the United States dollar remained convertible into gold. Each country established its own exchange rate against the United States dollar and then calculated the gold par value of their currency. The countries that participated agreed to try to maintain currency values within 1% of par through the purchasing or selling of foreign reserves or gold. If a currency became too weak to defend, a 10% devaluation was allowed without formal approval from the International Monetary Fund. The Special Drawing Right is an international reserve asset created by the International Monetary Fund to supplement existing foreign exchange reserves. (ref) This serves as a unit of account for the International Monetary Fund and is also the base against which some countries target their exchange rates. The Special Drawing Right has been redefined several times.
The United States dollar remained the key to the web of exchange rates after World War II. Bretton Woods and the International Monetary Fund worked well diverging fiscal and monetary policies and external shocks. But, heavy capital outflows of dollars became required to meet investors" and deficit needs and eventually this overhang of dollars held by foreigners created a lack of confidence in the United States. This forced President Nixon to suspend official purchases or sales of gold on August 15, 1971. The exchange rates of most leading countries were allowed to float in relation to the United States dollar. By the end of 1971, the dollar depreciated and eventually lost 10% of its value. By 1973 it appeared that the fixed rate was not feasible and dollar and other major currencies were allowed to float.