<P> The architects of Bretton Woods had conceived of a system wherein exchange rate stability was a prime goal . Yet, in an era of more activist economic policy, governments did not seriously consider permanently fixed rates on the model of the classical gold standard of the 19th century . Gold production was not even sufficient to meet the demands of growing international trade and investment . Further, a sizable share of the world's known gold reserves were located in the Soviet Union, which would later emerge as a Cold War rival to the United States and Western Europe . </P> <P> The only currency strong enough to meet the rising demands for international currency transactions was the U.S. dollar . The strength of the U.S. economy, the fixed relationship of the dollar to gold ($35 an ounce), and the commitment of the U.S. government to convert dollars into gold at that price made the dollar as good as gold . In fact, the dollar was even better than gold: it earned interest and it was more flexible than gold . </P> <P> The rules of Bretton Woods, set forth in the articles of agreement of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provided for a system of fixed exchange rates . The rules further sought to encourage an open system by committing members to the convertibility of their respective currencies into other currencies and to free trade . </P> <P> What emerged was the "pegged rate" currency regime . Members were required to establish a parity of their national currencies in terms of the reserve currency (a "peg") and to maintain exchange rates within plus or minus 1% of parity (a "band") by intervening in their foreign exchange markets (that is, buying or selling foreign money). </P>

What were its distinctive features of bretton woods system