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Forex History

By: EconomyWatch Date: 28 July 2009

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Forex history dates back to the ancient times of the Babylonians. Exchange as a medium was invented since the barter system. The first coins were used in ancient Egypt. Since then, foreign exchange has played a pivotal role in framing world politics and economy.

Forex History: Evolution of Foreign Exchange

Here are some milestones in the history of forex:

Change in gold standards (1816): The gold standard was used as standard trading unit and had a standard weightage. The British pound was defined as 123.27 grains of gold. The British pound was set as the fixed exchange currency. In 1879, the US adopted the gold standard and replaced the British pound as the new exchange currency. Bretton-Woods agreement (1944): After WW II, the US emerged as the world’s only stable economy. As a result, the dollar emerged as the new standard of foreign exchange. At the Bretton-Woods conference (1944), the forex framework agreed that the dollar would be the world’s new exchange unit. The Bretton Woods Accord established the World Bank and introduced the pegging of currencies and the IMF. Floating exchange rates (1973): The Smithsonian agreement was a flexibility agreement, which was signed in 1971 at Bretton-Woods to let currencies fluctuate. This was a deliberate attempt by the European market to break-way from its dollar dependency. However, the Smithsonian Agreement and the European Joint Float failed in their efforts to do away with the US dollar. By 1972, most European countries initiated the floating value of their currencies. In 1978 and 1993, countries tried to peg their currencies freely but failed. The financial market then introduced a free-floating currency system. Introduction of the Internet (1994): The forex market remained the prerogative of the banks but the Internet allowed small investors to enter the forex trading market. Online forex trading was introduced in 1994 and brought drastic changes to forex history. Today, the average daily trading volume of the forex market is $3.2 trillion. Arrival of the Euro: In 2002, the Euro was introduced as the official currency of 12 European nations. The rapid development of the Euro-dollar market accelerated trading in the forex market. It is the second most traded currency in the forex market. Retail Forex History: The popularity of forex returns introduced retail forex to the beginners and intermediate traders.