The Forex (Foreign Exchange) Market is the epitome of all traded markets. It is the least complicated and allows for trading 24 hours a day 5 days a week. This is useful when the goal is to develop a good system, stick to it and make a profit. The simplicity of the Forex Market compared to investments in other markets and combined with a person’s ability to trade almost every day of the week, makes it a desirable trading partner. But what is the history of the Forex market and how did it become what we know today?
Ancient Egypt to the Middle Ages:
Foreign Exchange Markets have been alive and well since the Middle Ages. Even long before that, various currencies changed hands between regions and countries since money first originated during the time of the Pharaohs. Paper bills and receipts were first used by the Babylonians, facilitating the exchange of currencies between third parties.
U.S. Centennial to World War I:
Between 1876 and World War I, Foreign Exchange Markets were very stable. All countries used the Gold Exchange Standard at the time which created this stability. Unfortunately, the gold standard had one major problem. When countries would become prosperous, thus allowing their imports to increase, their gold reserves would run down. These depleted reserves were the same as those used to support the country’s currency. One thing led to another and before long the country would go through a recession. When in recession the country’s products would look attractive to other countries and the gold would start coming back in to fill the coffers. The Gold Exchange Standard resulted in too much boom and bust under and so something had to change.
Great Depression to Early ’70s:
Shortly after World War I, in the 1930s, Foreign Exchange Markets became overly speculative, increasing volatility tenfold. From the early ’30s until the early ‘70s the Forex Market went through many changes, which can still be seen today. It wasn’t until 1973 that the modern Forex Market as we know it today started.
In 1944, after World War II was over, the major governments across the world came together in Bretton Woods, New Hampshire to agree on a way to move forward with Foreign Currency Exchange so each country’s economy could maintain and regularly renew itself in an orderly fashion. The Bretton Woods Accord was established to mesh currencies and the International Monetary Fund (IMF) to stabilize the world’s economies. The accord fixed the major world currencies against the Dollar at a rate of USD 35 for each ounce of gold. The accord was also established to decrease the speculative end of the market and prevent competitive devaluation of currencies.
Most other currencies were measured against the Great British Pound (GBP) up until World War II. When the British fell victim to German Nazi counterfeiting during WW II, thus devaluing the Great British Pound, the US Dollar became the standard by which other currencies were valued. The U.S Dollar had become a failed currency during The Great Depression. The destruction of Europe during World War II, however, allowed it to rise from the ashes and become the dominant world currency.
The Bretton Woods Accord wasn’t a permanent solution, but it did last until 1971 which was long enough to accomplish its mission, which was to re-establish monetary consistency and stability to post-war Europe and Japan.
The present-day Forex Market began in 1973. Currencies became part of a free-floating system as none of the agreements or accords remained in force. All countries officially adopted the free-floating arrangement in 1978. All major currencies move independently of one another in today’s world. This can lead to increased speculation and central banks occasionally intervene to return currencies to desired levels. Basically, supply and demand for currencies is the driving force today in the Forex Market.
You may want to consider the Forex market if you are considering becoming involved in the first market ever established for profiting from currency fluctuations. It is less complicated and has more liquidity than any other market. This is important when you are trying to develop a trading strategy for maximizing your profits.
To find out more about how to get started trading the Forex market read on here.