How did the Bretton Woods system approach currency relationships?

The Bretton Woods system, established in 1944, was designed to create a stable and secure international monetary order in the aftermath of World War II. The key feature of this system was that it established fixed exchange rates between currencies, directly tying them to the US dollar, which in turn was convertible to gold at a fixed rate. This arrangement provided a level of certainty and predictability in international trade and investment, as countries agreed to maintain their currency values within a narrow band around a fixed exchange rate linked to the dollar.

This system facilitated easier trade and investment across borders by reducing exchange rate volatility, allowing countries to plan their economic decisions with greater confidence. It depended on the United States' economic strength and its commitment to convert dollars to gold, which underpinned the entire framework. Over time, pressures such as inflation and trade imbalances led to challenges for the system, eventually culminating in the end of the Bretton Woods framework in the early 1970s.

The other options do not accurately reflect the core principle of the Bretton Woods system. Free-floating currencies were not part of this system, as it aimed to avoid the instability that such arrangements could create. Currency ties to various commodities would not characterize the Bretton Woods approach since it