Forex History

How the currency system emerged and made may to forex trading

In former times, people exchange goods between each other instead of using money. The barter system allowed people to use all kinds of items to exchange for the goods they want. Later, money in the form of gold and silver coins was introduced into the world. The gold coins are more durable and easier to store compared to the bartered goods such as livestock. After many years, gold and silver coins are also used in the monetary system of the Middle East.

From 1816 – 1933, people measured the weight of the gold with a scale to determine its value. The pound sterling is estimated to cost approximately 123.27 grains of gold. The pound sterling the most powerful currency in the world at that time. Because of the high value of the pound sterling, people often deem it to have the same value as gold.

From 1895, the United States replaced the British pound as the standard currency. Due to World War I, the economy around the world experienced a serious depression. The economic depression caused the United States dollar to collapse and ruin the international trading.

In 1944, forty five countries assembled at a conference in Bretton Woods (New Hampshiere, USA). The conference eventually formed a financial framework called The Gold Standard. The Gold Standard set the U.S. dollar to $35 per ounce of gold. John Maynard suggested the members to consider creating a world reserve currency that is in favor of the U.S. dollar. However, his suggestion was rejected.

In 1971, the currencies of the modern countries started to float free. The prices of the currencies fluctuated daily. When the U.S. dollar becomes stronger, two new agreements, which are the Smithsonian Agreement and European Joint Float currency, were made. In the 1990s,  Europe’s Exchange Rate Mechanism was established. Europe’s Exchange Rate Mechanism led to the union of the monetary system and the introduction of the Euro.

Speculation was always part of the human nature, so it is not strange that currency speculation (trading) gained more weight with growing currency transactions. Nowadays forex trading is the most efficient form of trading and appeals to professional traders as well as to part time traders that in addition have another job, at least until they get better at it.