The History of Forex Trading was an activity of exchanging fiat currencies and its history came from the Babylonian period. Today, the forex market has become among the most accessible, liquid, and biggest markets.
It was also influenced by many important global events such as the gold standard and Bretton Woods. Understanding the history behind forex trading with Best Forex Broker and major historical events that have influenced the market is important for traders.
Bretton Woods System
The foreign market was first transformed in 1944-1971 (the end of World War II). France, Great Britain, and the United States, met in the Breton Woods at the Financial conference. They also met in the US to design a new economic order globally.
The only country not affected by war at that time is the US that made it chosen as the location of the meeting. The major European countries mostly were in disarray. In fact, the US dollar rose because of World War II. Its rises from a currency that failed in 1929 because of the stock market crash.
It became popular as a benchmark currency used to compare against other international currencies. The establishment of the Bretton Woods agreement was proposed to make a stable environment in which the global economy can recover.
It tried this by creating a pegged customizable foreign exchange market. The exchange rate that is adjustable pegged is a policy in which one currency is set to another.
In this History of Forex Trading, the exchange rate of foreign countries would be fixed to the US dollar. Gold is used to peg the US dollar because, at that time, the holder of the most gold reserve around the world was the US.
Since the gold that existed was not enough to support the US dollar, the Bretton Woods agreement ultimately failed. The increase of government spending and lending increased the number of US dollars in circulation.
The Bretton Woods system was ended by Richard m. Nixon (the President) in 1971. It caused the US dollar to float freely against other international currencies.
History of Forex Trading, A Free-Floating System
In December 1971, the Smithsonian agreement came after the Bretton Woods accord. The agreement was similar but enabled a larger band of fluctuation for currencies.
The US dollar has depreciated because it was pegged to gold at $38/ounce. Major currencies against the US dollar fluctuated by 2.25% under this agreement.
The European community in 1972 tried to break away from its dependence on the dollar. West Germany, Luxemburg, Italy, Belgium, France, and the Netherlands then established the European Joint Float.
Mistakes were made by these two agreements in the History of Forex Trading like what the Bretton Woods made. Both agreements collapsed in 1973. The free-floating system resulted from these failures.
Formation of the Euro
After World War II, many treaties were designed by Europe in an effort to bring countries closer together in the region. The Maastricht Treaty was made in 1992. Nothing was more productive than the treaty. The name was chosen from the city as the place of the conference.
The treaty formed the Eu (European Union). It assembles a cohesive whole such as foreign security and policy initiatives. It also led to the formation of the Euro currency.
The amendment has been made several times for the treaty. But the creation of the Euro gave the distinct benefits for the European businesses and banks of eliminating exchange rate risk in a continuously globalizing economy.
Euro is now becoming popular and among the most tradable currencies in the forex market. It is traded by Didimax Forex Broker along with other currencies from countries around the world.
This insight is essential since similar events are likely to happen again in the future. Sometimes, the History of Forex Trading can repeat itself and shape the trading landscape.
