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Forex Trading History
By Admin Forex Gnomebilt | January 16, 2010
Forex Trading History
Before the trading of foreign exchange began, goods were valued with some other types of goods. This kind of transaction was well known with the name of barter. But even a long time ago in history, this kind of transaction was already considered inefficient due to the limitations it had. The system could not be generally accepted everywhere even in the near area, not to mention across the globe.
At a later time in history then, metal made its appearance. Then people began using metal as a generally acceptable means to pay for a wide variety of things. Then, coins emerged. The coins were made from metals. Not long after the appearance of metals, another form of payment was invented.
It was the forms of IOU. The IOU stood for “I Owe You”. They were governmental forms. But the forms of IOU were more easily accepted by force compared to persuasion. This was what actually the early stage of the currencies that people use today around the world in their everyday transactions.
Prior to the World War I, gold can be converted from most currencies that were supported by the central banks. In fact, the paper money that existed at that time was always acceptable to be converted into gold. Yet, a risk existed. The government did not provide full cover in case something went wrong. This discouraged people to use the paper money then.
As a result of the situation, paper money exceeded the necessarily supply which caused inflation as well as the instability of the political atmosphere. This was when the foreign exchange made its very first appearance in the market. To cope with the inflation and the instable political atmosphere, the government responsible at the time attempted to introduce the foreign exchange in order to drive away the attention of the market forces that might punish the irresponsibility of the monetary system.
Yet, an agreement was reached in July 1944, sometime between the World War II, in the USA. It was the agreement of the Bretton Woods that rejected the suggestion proposed by Keynes, John Maynard to reserve the world currency that was favorable to US Dollar system. As a result, a system emerged in which the fixed rates of exchange partially reinstated the standard of gold as well fixed the USD to be able to purchase an oz of gold with US$35. The system also managed to fix other currencies to dollar and the system was meant to be permanently implemented.
But even the system of the Bretton Woods could not last forever due to the pressure in the US that kept on increasing. Yet, not later than the year 1979, the EEC, which stood for European Economic Community, introduced the new monetary system to be applied in Europe, a new system in which the fixed rates of exchange were also implemented.
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