History Of Forex

 

When money was invented, money trading began and it's still going on today. We can measure the value of any product today at a price while clearing the goods and assets during these periods. The desire of a trader to do business with different countries has led to money trading. It was understood at first that the printed cash had to have the backing and as such gold standard began to be practiced. The difficulties in maintaining this system led the countries to sign the Bretton Woods agreement. According to the agreement, the only currency that can be converted into gold is American Dollar and 1 ounce of gold is 35 dollars. However, the practical difficulties involved the existence of a commodity behind the currency. It was the symbol of the money-worthy country and the confidence that was brought to the central bank of this country. Today, we can always buy and sell any kind of currency. Forex market, exchange rates have a bigger share in the free exchange rate system.

Forex History

The history of the Forex market dates back to the days of the barter economy. In the barter economy, goods had a value in goods to be taken as exchange. With the later invention of money and an increase in national and international trade, the value of a commodity began to be expressed with a monetary value. This situation led to the requirement of determining an equivalent value for currencies of different countries in international trade. The increasing volume of international trade in the 20th century brought with it the fixing of the currency of each country to Gold prices. However, problems in the system in question led to the signing of the Bretton Woods agreement, where currencies were fixed to both Gold and the American Dollar.

Bretton Woods agreement

Currencies that have agreed to tie the countries to the treaty and fix their national currency at Gold prices have begun to appreciate against the US dollar. The dollar kept its validity in the single national currency that could be converted into Gold. According to the agreement, 1 ounce Gold = $ 35 or $ 1 = 0.88867 grams of Gold.

The agreement allows any country to change the currency's value against the Dollar only in the case of asymmetric monetary shocks. The devaluation and revaluation rates for these fluctuations are limited to 10 percent. The amount exceeding 10 percent is subject to special permits from the IMF.

Smithsonian Agreement

With this agreement, the value of the American Dollar has been reduced by 8 percent compared to foreign currencies. However, in a short period of time, the devaluation rate of the American Dollar was found to be insufficient. As a result of speculative attacks against the Dollar, on 12 February 1973, the American Dollar was again devalued by 10 percent. With the move in question also being insufficient, the currency markets were forced to close between 1-18 March 1973. With the reopening of the markets on 19 March, Asian and European currencies were allowed to fluctuate freely against the Dollar. While this was initially thought to be a temporary development, it is considered the start of a new period (flexible exchange rate).

All these regulations allowed for exchange rates to move freely, and are the building blocks of the flexible exchange rate system. Today, currencies can be independently bought and sold from other country currencies. This case positively affects the effectiveness and depth of the Forex market. The main participants of the Forex market, where foreign currency can be freely bought and sold, can be listed as private/public banks, central banks, individuals and companies attempting to protect themselves from currency risks and individual investors carrying out for-profit (speculative investment) transactions.