Different Milestones In Forex History
Forex history can be traced many centuries ago. In fact, the Babylonians are discovered to be the first civilization top use paper notes and receipts. During the ancient times, the barter system was used to trade goods. This system was inconvenient as the value of one item had to be measured in terms of another good. This is how a medium of exchange was developed to express a common base of value. In the past, items like shells, stones and teeth were used as money. However, as years passed metals such as gold and silver became accepted mediums of exchange. Paper currency, on the other hand, was slowly introduced during the middle Ages and its use was deemed mandatory by many governments through forex history.
Forex history indicates that prior to the first world war, many central banks supported their currency by given it value in terms of gold. This gold exchange standard was plagued with problems since it is the tendency of a booming economy to use up its gold reserve until its supply runs out. This led to economic recession as money supply diminishes and interest rates increase. When a specific currency weakens, other nations would buy this currency until its money supply is restored to normal levels and interest rates go down. These are referred to by economists as boom-bust patterns.
The next milestone of Forex history is the signing of the Bretton Woods Agreement in New Hampshire, United States by forty five representatives of countries all over the world. The World Bank, General Agreement on Tariffs and Trade (GATT), and the International Monetary Fund were formed due to this agreement. These institutions were founded to stabilize the economies of countries that had been devastated by war. The fixed exchange rate system was implemented and the US dollar was pegged at $35 per ounce of gold. Other main currencies were fixed to the dollar as well. This agreement however, was abandoned in 1971 when President Richard Nixon of the United States suspended the convertibility of gold. At this time, the US currency had suffered from increasing budget and trade deficits. From then on, the floating exchange rate system had been used by many countries. In this system, the currency of one nation is measured through another currency. The subsequent decades saw the rise of the foreign exchange market into the largest and most successful global market. This forex history milestone was also due to the fact that many governments had removed restrictions on capital flows allowing the market to dictate and determine foreign exchange rates. The advent of technology and communications as well as the continuous trading through Asian, European and American time zones contributed to forex market growth.
Another aspect in forex history that is also acknowledged to be one of the factors that lead forex market growth was the development of the Eurodollar market. These are where assets, including US dollars, are deposited outside the country of origin which in the case of the dollar is the United States. The existence of Eurodollar markets originated during the a1950s when oil revenues were deposited outside the US in fear that authorities will seize control of the money. Since then, many offshore dollar accounts had been maintained.
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