A Brief Look at Foreign Exchange History

1973 was the year where the foreign exchange market (AKA Forex or FX) originated. But as we all know everybody is familiar with money since before even the Pharaoh's time.

The first paper money was used by the Babylonians as well as the use of receipts. However, the first and true traders of money came from the Middle East; they were the first to exchange one currency to another, usually they exchanged coins from one currency to another.

When the time of the Middle Ages came about the need for exchanging currency became neccessary. Aside from exchanging coins they began exchanging paper bills.

The exchange of paper bills made the trades for merchants more easy and with the help of these new development with money, economies from different regions began to flourish.

During World War I the foreign exchange markets were said to be pretty stable. However, after World War I foreign exchange markets became unstable and the risk activity of the market was increased.

Then during the Great Depression in 1931 the Foreign Exchange market's activity became quiet.

The transition period for the Foreign Exchange market occurred from 1931 to 1973. The changes had a wide effect on the economy of different countries.

It was after World War II that the great major transformation occurred in the Foreign Exchange Market. France, Great Britain and the United States all met up together at the Financial Conference in Bretton Woods to talk about the new economic order that would be set globally.

It was the Great Britain's currency, which is the British Pound, that the major currencies were compared to.

In the hope of stabilizing the economy, the Bretton Woods Accord was founded. This gave the global economy a chance to restore their environment and make it stable. The Bretton Woods Accord was active until the year 1971. After long years of battle it finally failed. However, Bretton Woods accomplished what it set out to do and that was making Europe and Japan's economics stable.

After the fall of Bretton Woods Accord, the Smithsonian Agreement came to existence; this was in December of 1971. The Smithsonian Agreement had similarities with the Bretton Woods but this time it allowed currencies to fluctuate. Nevertheless, the Smithsonian Agreement collapsed in the year 1973.

Today, major currencies can now move from one currency to another freely and without restrictions. Anyone can trade with anyone they wish to trade with.

Huge banking firms and individual brokers came into existence. Occasionally Central Banks intervene to move the supply and the demand of price rates.

This new Foreign Exchange is what they call a free-float system.