History of the Forex Market
The Forex market dates back to the 1880s and has gone through some important changes over the years to evolve into the dynamic commercial market it is today. The early days of the currency were established on the value of silver and gold, which supplied a constant pattern for trading between countries with a quite stable value. Gold and silver coins can be used between countries for the procurement of goods and services. The prices of these two rare metals, was to a large extent, driven by the current accessible supply and changed with each discovery of new deposits. This gave the currencies relative stability when operated within the country, but their value can vary significantly between countries, depending on the amount of gold that a country could hold in reserve.
A brief history of Forex market
We go back to the year 1944. In this year, the Bretton-Woods agreement was carried out, whose aim was to equip nations with monetary stability that would avert the flight of capital between countries and financial speculation.
Previously, the value of the coins was based according to the gold reserves of each country. This was a very nervous system because it caused spectacular growth and recession cycles.
When a nation developed, it import goods, and therefore, it lost some of its gold reserves, sustenance of the currencies with which it was paid. Hence, the money feed was reduced, and the interest rates rise, causing a decline in economic activity until the recession.
It was essential to find a system that dispels these economic models with cycles of growth and recession so brief and abrupt. In abridged, the goal was to achieve the outstanding monetary stability that will, in turn, allow for the sustainability of economic growth and the brushing of the cycles of growth and degrowth.
The Bretton-Woods agreement
From this, the Bretton-Woods agreement was reached, which vested an exchange rate of all currencies against the dollar, and the dollar in turn concerning gold ($ 35 per ounce of gold). Governments were dedicated to keeping their currencies in a certain margin of variation with respect to the dollar. Also, the Central Banks of each country were forbidden from arbitrarily devaluing their currency to realise price competitiveness and increase exports (the maximum acceptable devaluation would be 10%).
But these conditions were not realized, since in the decade of the 50, the huge activity of reconstruction after the Second World War and the need of goods and services of a population with remarkable deficiencies, caused that there was an excessive flow of capital to the international level that crippled the exchange rates agreed in Bretton-Woods. Lastly, in 1971 the convention was discarded because it was impossible to adhere to it (you cannot afford to exchange $35 an ounce of gold). The currencies then began to fluctuate amply, based on the laws of demand and supply, with the exchange rates calculated daily. Significantly increased the speed and volatility of the currency exchange operations, as well as the volume of capital in circulation.
The beginnings of Forex
Starting in the 1980s, the initiation of new technologies began to favour the globalisation of the Forex market, and its continuation, as the Asian market in America and Europe passed round time uses continuously, which caused a 24 hours open market.
With the technologies of the 90s and the arrival and extension of the internet all over the globe in the new century, the Forex market became global, unending and accessible for all investors, becoming the largest market per capital volume involved daily. And this global market for buying and selling currencies is what is known as FOREX MARKET (Foreign Exchange Currencies Market), or international currency exchange market.