The concept of forex trading is fascinating and yet not that unusual. At the beginning of forex trading, it was more of an informal way. People used to help each other perform transactions for various items in exchange for charges termed as commission. In today’s era, we call these people brokers. This article emphasizes the forex history, when forex was discovered, and how it started!
When was Forex Discovered?
The first currency exchange started 2500 years ago when Egyptians and Greeks traded goods and currencies in exchange for silver and gold coins. The value of these coins was decided on their size and wrights. After 500 years, in the Roman empire, the government got the monopoly of currency minting, and it got more centralized. It factored in the currency trading establishment. It is the same today, with the central banks of various nations having the power to mint currency and make monetary policy decisions.
That was the first phase of forex history. After that phase, and before 1000 years, copper became the most used metal in the form of currency. This was in the middle edge that copper became the new trading means. This shifted the focus from gold to copper for creating coins, and it was also more economically viable. To date, the one-cent coins in the United States are minted with 97.5 percent Zinc and 2.5 percent copper.
During the same time, the oldest bank globally, Monte Dei Paschi, was established in Italy to perform transactions related to currency.
The Modern History of Forex Market
Around 500 years ago, the first currency market in the world started in Amsterdam. The market let the currency exchange getting freer and more normalized and, as a result, helped currency rates to get stabilized. This was the first market in forex history; many forex markets boomed in the entire world after that.
The Gold Standards were introduced in 1821, which led to the regulations that a country can mint money as their national currency only to the amount of gold kept as a reserve. “Gold specie standard was first established in 1821 in Great Britain when Britain adopted it following the introduction of the gold sovereign by the new Royal Mint at Tower Hill in 1816”. The standards were imposed to safeguard the currency value. Soon after that, World War I started, and nations had to mint more currencies to meet the warfare requirements, which eventually led to the end of the Gold Standards era.
The year 1880 is considered the beginning of modern foreign exchange because the gold standard began in that year. In 1880. major world countries increased significantly gold reserve such as the USA, Great Britain, Austria-Hungary, Belgium, Canadian Confederation, Denmark, Grand Duchy of Finland, German Empire, and Sweden-Norway. Gold speculation was primary used in the foreign exchange markets financing international trade.
By the year 1913, currency trading firms witnessed a hike, and within ten years, it reached 71 from 3 in the London market. It is noted that out of all the currency transactions, more than 50 percent were in Pound. In 2013, the Pound (sterling) was still ranking at the fourth position in currency trading. On the first position was the US dollar, followed by the Euro and Japanese Yen.
Though Gold Standards’ story didn’t end with World War I, the reason was introducing the Bretton Woods System during the Second World War.
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.
The Present and Future of the Forex Market
As you might know, forex is the largest financial market in the world. It is also more volatile as events around the globe affect it. The currency market remains open for 24 hours and seven days as it operates from various locations worldwide. This reason also attracts many participants in the forex market.
With its unique characteristics and dynamic structure, the forex market is likely to be a fierce competitor to other developing markets like the digital cryptocurrency markets even in the future.