The history of forex

The Foreign Exchange market is the largest financial market in the world with an average of $3 trillion dollars being traded in it every day. Central banks, currency speculators, multinational corporations, commercial banks and other forex brokers participate in it. The market has grown so drastically throughout the years that we believe it is important to be familiar with its history. We will give you an overview of Forex history—the reasons for its existence and the amazing way in which it grew—which will hopefully make you even more fascinated with it.

Forex history can be traced back to times of bartering when goods were traded for other good. At that time metals (bronze, silver, gold) were traded in the form of coin sizes. Later on, paper became a mean of exchange with which trading was carried out, which was followed by the introduction of the gold standard system.

Bretton Woods Agreement was an agreement that was established in 1944 and is known as the first Foreign Exchange system. Representatives from 45 countries attended this conference and discussed the foreign exchange system. At the end of this conference the formation of the International Monetary Fund (IMF) was established. According to which the US dollar’s value was “pegged” (to peg means to connect the value of a certain currency to gold) at $35 per ounce. Other currencies were to be compared to the values of the U.S. dollar. The idea behind this system was to stabilize world economy. And indeed for a certain amount of time, it was able to do exactly that. However in 1971 the Bretton Woods Agreement was canceled due to a collapse in economics. This meant that the US dollar was no longer convertible to gold and that the economic system was much more free-floating from that point onward.

In 1973 two additional agreements failed, completing the transition to a free-floating system. These agreements were the Smithsonian Agreement, which allowed greater fluctuation band for currencies, and the European Joint Float, which allowed a greater fluctuation range in currency values. Both failed and resulted in the emergence of new markets along with new financial instruments, market deregulation, market systems and trade liberalization.