The foreign exchange market: a history – Part 1

December 23rd, 2011
A brief history of the foreign exchange market. The first money ever made was not valued on rates; it was dependant on the type of material that was used to make it. Money was made out of sable-fur pieces, gold, pearls and so on. As time went on, the amount of people trading was expanding, meaning that it was no longer possible to secure the volume of money with gold and so on. The time had come for some form of money to be mass produced that was easier to use than various materials based on their value. After mass production with cheap materials had been achieved it was then to answer the question of how to calculate the rate of one foreign currency in relation to the other arose. The first system to deal with international agreements regulating currency operations was so called “Golden standard”.
The Golden standard was formed after the Napoleonic wars of 1803-1825. The essence of the operation was that participating countries would set the golden content fixed in their currency units and were obliged to exchange foreign currency to gold in accordance to that content if any other participant asks to do so. The system was generally used until World War One and it was rife with crises. There was no regulatory body overseeing the system, until after World War Two when financial organisations were becoming apparent.
In 1930 the Bank for International Settlements was founded. Its objectives were to support financially young independent countries or the countries with the payment balance deficit.
The next stage of the foreign exchange market history sees the creation of a global financial order in the Bretton Woods agreements. They had great impact on financial and economic life.
In 1944 the Bretton Woods conference took place in the United States. The aim of the conference was to end all rivalry between Great Britain and America. The conference was attended by two great figureheads from Great Britain and America, and they managed to create and accept a new foreign exchange system. It established rules for commercial and financial relations among the world’s major industrial states in the mid-20th century. It was the first example of a system to regulate the monetary system in the world, paving the way for foreign exchange systems.
In 1964, Japan declared that its currency was convertible. After all major currencies declared that they were convertible; it became clear that the USA could not support the price for an ounce of gold. US dollar inflation then became a threat for the USA. The President Kennedy administration led to a programme of taxation and limitation being introduced, this brought about the new market of Eurodollars.
As we can see, the foreign exchange market was slowly growing. Read Part 2 for more information on the growth of foreign exchange across the world.

A brief history of the foreign exchange market.

The first money ever made was not valued on rates; it was dependant on the type of material that was used to make it. Money was made out of sable-fur pelts, gold, pearls and so on. As time went on, the amount of people trading expanded, meaning that it was no longer possible to secure the volume of money with gold and so on. The time had come for some form of money to be mass produced that was easier to use than various materials based on their value. After mass production with cheap materials had been achieved, it was then necessary to answer the question of how to calculate the rate of one foreign currency in relation to the other arose. The first system to deal with international agreements regulating currency operations was called the “Golden standard”.

The Golden standard was formed after the Napoleonic wars of 1803-1825. The essence of the operation was that participating countries would set the golden content fixed in their currency units and were obliged to exchange foreign currency to gold in accordance to that content if any other participant asked to do so. The system was used until World War One and it was rife with crises – there was no regulatory body overseeing the system until after World War Two when financial organisations were becoming apparent.

In 1930 the Bank for International Settlements was founded. Its objective was to support, financially, young independent countries or those countries with payment balance deficits.

The next stage of the foreign exchange market history sees the creation of a global financial order in the Bretton Woods agreements. They had great impact on financial and economic life.

In 1944 the Bretton Woods conference took place in the United States. The aim of the conference was to end all rivalry between Great Britain and America. The conference was attended by two great figureheads from Great Britain and America, and they managed to create and accept a new foreign exchange system. It established rules for commercial and financial relations among the world’s major industrial states in the mid-20th century. It was the first example of a system to regulate the monetary system in the world, paving the way for foreign exchange systems.

In 1964, Japan declared that its currency was convertible. Soon more followed and after all major currencies declared that they were convertible, it became clear that the USA could not support the price for an ounce of gold. US dollar inflation then became a threat for the USA. The President Kennedy administration introduced a programme of taxation and limitation and this brought about the new market of Eurodollars.

As we can see, the foreign exchange market was slowly growing. Read Part 2 for more information on the growth of foreign exchange across the world.

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