History of the currency market
Forex trading is among the most popular financial markets globally, which has brought huge impacts in the trading world.
In the past, it was not impossible to make some transactions using electronic gadgets, especially for international payments, which led to the silver and gold standard systems. Therefore, The history of forex is important in knowing the trends in the forex exchange market.
History And Evolution Of Foreign Exchange
Lack of technologies made it difficult to process international payments. Therefore, I have provided A brief history of the foreign exchange market read and find out.
The first currency exchange started 2500 years ago when Egyptians and Greeks traded goods and currencies in exchange for silver and gold coins.
Gold Standard System
The gold standard system started in 19. century. This system was established in 1875 among the countries that were using silver and gold as the method of international payments. However, global supply and demand became affected on the international payment platforms because these metals’ value was not stable. After all, it kept on fluctuating. This was when any amount would be converted to the corresponding amount of gold as a standard system. The modern forex trading system developed after The Second World War.
Even though gold had become a recognized monetary value, world war’s occurrence brought some devastating effects to this system.
However, nowadays, the gold standard system is not used as a standard system, but it plays a crucial role because of its demand; hence it has been used as an economic indicator because of its long term interaction with the US dollar.
When Did Forex Start?
The modern forex market was established in December 1971. when The Smithsonian Agreement was announced. In 1971, a new dollar standard was created whereby several industrialized states’ currencies were pegged to the US dollar. U.S. dollars were no longer backed and exchanged for gold.
History of the forex market how it all began
Before the second world war camera to an end, some countries struck a convention and decided to develop an effective mode of international payment in Bretton, which was attended by very many representatives. After the convention the following aspects were brought on board:
-There was a need to address the methods that were to be used in the forex exchange rates.
-The US dollar was seen as a perfect complement to the gold standard system; hence it has to be made a primary reserve currency.
There was the creation of international agencies who would supervise economic activities. These agencies include General Agreement on Tariffs and Trade(GATT), International Monetary Fund (IMF), and International Bank For Reconstruction and Development.
Relative economic strength in the floating exchange system is perceived as a long-term currency price change and interest rate between different countries. In contrast, on the other hand, short-term currency price changes mean speculations, rumors, and disasters based on daily supply and demand for the currency.
Therefore central banks can intervene when there are extreme short-term current price changes and a floating exchange environment. That is why the national currency is extremely low or high; they can step in to ensure a balance is always maintained. The country’s economy is negatively affected when the currency is extremely low or extremely high, and in the long run, the country will not be able to trade or pay off pending debts.
Therefore, when this happens, the Central Bank and the government try to develop intervention measures to help move the currency to a more favorable price rate. This is to ensure that economic trends are stable to maintain their economic power. The good thing with floating exchange rates is that there will be no need for international exchange rates. This is unlike fixed exchange rates, which are based on metallic standards. The currency of a country will depreciate if it has an account deficit.
Additionally, the floating exchange rate is more volatile, and it uses scarce resources to predict the exchange rates. That is why allocating substantial resources to predict the exchange rate changes to expose the rate risk. If the country is hosting a high population of unemployed personnel or inflation, then floating exchange rates can be inappropriate because it might worsen the current situation.
The Electronic Communication Network
Top commercial companies traded free-floating finance markets because they had a good amount of money. Consequently, The internet and technology expansion has made it possible for any investor living in any part of this world to make a substantial investment from the forex market. When the brokers stormed into the market, they started placing the electronic communication network instead of their clients, which made them sell at a higher price to profit from it.
Retail and small investors interested in forex trading can start trading with a small amount of money by signing up with a good broker. It is important to know that not all brokers are trusted because the Internet is full of scammers. Therefore you need to take the time to find an authentic broker who will help you to grow your account.
The electronic communication network has made forex trading very simple. You can now trade in the comfort of your home regardless of your location or time zone. This was initially introduced in the United States in the year 1990 to enhance electronic trading. This came to be because there were fast developments in technology and the internet. Signing up with the right brokers has been made easy with the electronic communication networks; hence, it favors small traders.
The gold standard system was the first to be used in the foreign exchange market. Thereafter Bretton woods was developed after a meeting of 700 representatives, but it, unfortunately, broke down. This paved the way for the floating exchange rate system, which became popular shortly, but it also followed suit, and it failed. Therefore when the technology was flourishing electronic communication network was introduced in 1990, which completely changed the international monetary system because of the efficiency that it brought into the forex trading world.
Apparently, Forex has a long history, and today, the improvements that have been made are for the good overboard the small and advanced forex Traders. All this marks the important events in the history of the forex market. This gives you insight into how there has been an evolution in the exchange rates as Time goes.