It is not easy to understand the forex market at first glance. Each of the forex exchange taking place comprise of monetary units which can either be the currencies, services or goods. The prime objective of this article is to shed some light on history of forex trading going back to its roots and how it all started. Read on.
As we travel back to the very beginning of forex trading history, the use of barter system for trading was common. The price of goods was expressed and calculated in the terms of goods only. But the limitations of this system required the setting of a common benchmark of value, as a more general accepted means of exchanging. It was common to see everything from pretty stones to teeth to feathers to serve this purpose. But precious metals, like gold and silver, were looked upon as an accepted means of payment as well as a reliable value. But even this system had flaws and was not efficient.
The history of forex trading reveals that in 640 BC, the currency introduction in the civilization coast of Turkey was a step towards advancement in this field. It was possible to settle on the value through a universal thing and that was currency. It became common to see people selling their wares to anyone for currency and then using that currency to buy other necessary things. The first currency made up of metal and the mixture of gold, can be considered the first currency in the forex history.
The prevalent use of currency in the early history of forex trading drove the governments to try to exert control and seek power. The long struggle between government and the market has played an important role in the making of the Forex market today.
It was during World War II, that the famous Bretton Woods agreement took place. The new thought for a new world reserve currency favoring the US dollar built system was not approved. As a result, the invention of fixed exchange rates system, partly restoring the gold standard, fixed the other main currencies as per the dollar. Forex trading history reflects that the Bretton Woods buckled in during the early seventies, as the markets fumbled.
The forex trading today has not only developed into the largest global market, but also the most liquid too. In many of the countries, capital flow restrictions were removed.
The EEC or European Economic Community in 1979, introduced the European Monetary System, which is a new system based on fixed exchange rates. With the birth of Euro in year 2001, however, the race for currency stability continued in Europe. Many of the currencies were replaced and fixed with the coming of Euro.
Forex history shows that in the latter part of 1997, there was continuous devaluation of currency against the US dollar. This left the other fixed exchange rates, in some parts of America exposed and very vulnerable. Recent years have seen many commercial companies facing a volatile currency environment due to the traders and financial banks, institutions dealing with new open markets. More than USD 3,000 billion is traded every day, which is far more than the world's stock and bond markets combined.
We hope that the above information on history of forex trading will expand your knowledge on forex.