By: Charley Warady
The advent of the Forex market is the direct result of the evolution of currency exchange history. Put very briefly, the Bretton Woods accord in July 1944 fixed the dollar to 35 USD per ounce and other currencies to the dollar. In 1971, President Nixon suspended the convertibility to gold and let the US dollar 'float' against other currencies. Thus developed the modern currency exchange history.
The roots of trading of currencies can be traced back to the Middle Ages. It was developed by the development of bills of exchange by international merchant bankers. These bills of exchange represented transferable third-party payments, which facilitated both flexibility and growth in the trades that included foreign exchange. Obviously, this bit of currency exchange history is the precursor to the Forex market we know today.
It began when
It wasn't always the US dollar that was the backbone of the currency exchanges. The currency exchange history actually began with the British pound as the currency everyone based their currency against.
That changed with World War II. England was devastated by the war and so was its currency value. That war left the United States as the major holder of a stable currency and thusly, the US dollar became the guiding currency. At the time, the dollar was linked to the value of gold and became much more reliable. Of course, those days have changed. But at the time of the currency exchange history, this basis was important in the evolution of the Forex market.
After Nixon rid the world of the gold based dollar in the seventies, currencies began to be traded because of the new situation. Everything was free floating and currencies gained and lost value in the open market.
Currencies were traded at the Chicago Mercantile Exchange in the International Monetary Market and it became a huge market in commodities. But there was a sticking point. There were people that wanted to trade the currencies around the world but the IMM was open only during the trading hours of the Chicago Mercantile Exchange. Therefore the currency exchange history was due to take another turn.
The volatility of currency rates continued to attract investors and traders into the currency market. There were, at times, huge swings and a lot of action going on. And then there were computers.
The use of computers in commodities trading is perhaps the most influential occurrence in the currency exchange history. It changed everything. Software was developed that would make it flawless to trade online. Suddenly, there were no borders. A person in Hong Kong could trade the same market at the same time as the person in Miami.
The connection of traders located all around the world was made possible by computer technology. Traders have become more sophisticated due to the advances in technology, computer software and telecommunications. As a result, the Forex market was born and the currency exchange history has entered into yet another new phase. Trading currencies, all the time.