The History of Foreign Exchange

The Forex trading history started in 1875 with the birth of the gold standard monetary. Prior to 1875, countries primarily used gold and silver as a form of international payment. Payment using gold and silver were hampered by their devaluation according to external factors such as an increase in the discovery of new deposits, which would lead to a change in supply and demand. This factor would change the Forex trading history forever.

The aim of the implementation of the gold standard was to guarantee any currency, to set amount of gold. Currency was now backed by gold, measured in ounces. Countries needed large gold reserves to back the demand for currency. The price difference of an ounce of gold between two different currencies now became the foreign exchange rate for those two currencies. This History of Forex was changed by the birth of an international standard by which foreign exchange could take place between countries. The gold standard monetary broke down during the start of the First World War Political turmoil with Germany forced the larger European powers to focus on military projects. This financial drain on Europe gave way to a lack of gold to back the excess printing of currency and would determine a new change in the FX trading history.

The abolishment of the gold standard monetary system left a void in the method of foreign exchange, and changed the path of Forex history. This matter was a concern to the Allied countries and a convention were held at Bretton Woods, New Hampshire, in July 1944, to solve this problem. This convention led to the inception of the Bretton Woods monetary system.

This new Bretton Woods monetary system defined the new Forex market history:

The Bretton Woods monetary system only lasted about 25 years and failed primarily on the basis of making the US Dollar the only currency to be backed by gold. The U.S announced the end of the exchange of gold for US Dollars by foreign banks on 15 August 1971.