Forex History
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The history of FOREX begins with the history of trading itself. Humans always had the need to exchange different objects to satisfy needs and wishes. Earlier in our history, goods were usually traded for other goods, and expressed in terms of other goods as well. Although this was simple and functional, it was also very limited, which encouraged more general exchange systems. With generalized exchange systems, a common base of value was established. Not money in itself, but specific objects (like Cacao seeds for Mayans and Aztecs, grains for Egyptians, etc.) were commonly used in ancient civilizations.
Currency was introduced as a standardised money to facilitate a wider exchange of goods and services. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. The system of commodity money in many instances evolved into a system of representative money. In this system, the material that constitutes the money itself had very little intrinsic value, but nonetheless such money achieves significant market value through scarcity or controlled supply.
While international trade has been present throughout much of history (like the Silk Road, Amber Road trade routes), its economic, social, and political importance have increased in recent centuries, mainly because of Industrialization, advanced transportation, globalisation, multinational corporations, and outsourcing. Different countries had different currency systems, though, and they tend to move in these. There was a need to have a measure of currency, and up until the first quarter of the 20th century, central banks all over the world did this by supporting their currencies with gold convertibility values. With not enough gold, inflation and market weakness led to the Depression in the 1930s. In 1931, the gold standard was removed.
Efforts began to find a unified currency system that didn’t depend on gold. in 1944, The Bretton Woods Agreement, aimed at installing international monetary stability by preventing money from fleeing across nations, and restricting speculation in the world currencies, was set up. The countries that were participating agreed to try and maintain the value of their currency with a narrow margin against the dollar and a corresponding rate of gold as needed. Countries were prohibited from devaluing their currencies to their trade advantage and were only allowed to do so for devaluations of less than 10%. This system worked well up until the end of World War II, primarily because of massive movements of capital generated by post-war construction. Finally, the agreement ended in 1971, meaning that the US dollar would no longer have a gold currency.
As the restrictions on capital flows have been lowered and/or removed in most countries around the globe, FOREX was created to control the currency exchanges, although at first it was used by the central banks and the governmental institutions. The last few decades have seen foreign exchange trading develop into the world’s largest global market, leaving the market forces free to adjust foreign exchange rates according to their perceived values. With the boom of the internet and the facilities that the web offers to make transactions, the field of FOREX has grown and the market itself has also grown exponentially.
A major catalyst to the acceleration of Forex trading was the rapid development of the international markets (both european and asian), where US dollars are deposited in banks outside the US. With close to US$ 4 Trillion traded daily in the past year, FOREX has been growing steadily in the past 10 years, and is now the largest financial market in the world. It can be said easily that Forex market is a lucrative opportunity for the modern day savvy investor. In these globalized times, the need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.
With information from Wikipedia.
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