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The Bretton woods System EssayThe Bretton Woods System (BWS) was implemented in 1946 under the Bretton Woods Agreement, each organisation obliged to maintain a fixed exchange regulate for its currency vis--vis the dollar or sumptuous. As one ounce of gold was set equal to $35, fixing a currencys gold price was equivalent to setting its exchange rate relative to the dollar. The fixed exchange rates were well-kept by official intervention in the foreign exchange markets. This intervention was about purchases and sales of dollars by foreign central banks against their own currencies whenever the supply and demand conditions in the market deviate from the agreed on equality values. Any dollars acquired by the monetary authorities in the process of an intervention could then be exchanged for gold at the U.S Treasury. In principle, the stability of exchange rates removed uncertainty from trans national trade and investment transactions.Normally, if a country followed its own pol icies leading to a higher inflation rate than its trading partners would experience a balance of payments deficit as its good became more expensive, which means its exports result decrease. A deficit has consequences, an increase in the supply of the deficit countrys currency on the foreign exchange markets. The excess supply would demoralize the exchange value of the currency of that country, forcing its authorities to intervene. The nation would be required to buy with its reserves the excess supply of its own currency, in order to get the domestic money supply. In addition, as the countrys reserves were depleted, the authorities would be squeeze to change economic policies to eliminate the source of deficit. The reduction in the money supply and the adoption of inhibitory policies would reduce the countrys inflation.Basically, Bretton Woods was a fixed exchange rate system in name only. With 21 major industrial countries, only the U.S and Japan had no change in par value betw een 1946 and 1971. From the 21 countries, 12 devalued their currencies more than 30% against the dollar, four had revaluations, and four others were move their currencies till the end of the system. On mid-1971, the president Richard Nixon was obliged to devalue the dollar to deal with Americas emerging trade deficit. The two reasons for the collapse of (BWS) are, inflation in U.S, they financed the escalating war in Vietnam, so they were make money instead of raising taxes. Another reason is that West Germany, Japan, and Switzerland refused to accept the inflation because a freshly fixed exchange rate with the dollar will be imposed on them. Thus, the dollar depreciated crisply relative to the currencies of those three countries.