Forex Trading History

Bretton-Woods Accord

The modern Foreign Exchange or forex market as we know it has been around since 1973. The establishment of the Bretton-Woods Accord in 1944 is usually thought to have marked the beginning of foreign exchange. It was made to stabilize the global economy after World War II. It had a profound impact,  creating the concept of pegging currencies against each other and the International Monetary Fund (IMF) as well. Currencies were pegged to the dollar which were then in turn pegged to gold in hopes of bringing stability of global forex events. Up until 1971 when the Act finally failed, it did manage to stabilize the economies in Europe and Japan.

Free Floating Currencies

In 1971 and 1972 two more attempts at free-floating currency against the U.S. dollar, namely the Smithsonian Agreement and the European Joint Float. The first was just a modification of the Bretton-Woods accord with allowances for greater fluctuation, while the European one aimed to reduce dependence of their currencies on the dollar. After the failure of each of these agreements, nations were allowed to peg their currencies to freely float, and was actually mandated to do so by 1978 by the IMF. The free-floating system managed to hold out for several years, but many denominations had failed against the strong currencies.

European Monetary System

European currencies were among those that were affected the most by the strength of such currencies as the US dollar, or the British Pound. In July of 1978 the European Monetary System was created to counter the dependency on the US dollar, but by 1993 it was clear that the attempt had failed. By the 1990’s currency trading opportunities had begun to be enjoyed by not only those familiar with the Foreign Exchange market, but to people interested in investing in new markets.

Impact of Devaluation

Not only were there stability issues in Europe, but there were several problems in Asia as well. In 1997 there was a currency crisis in many of the Southeast Asian countries, where currencies were forced to float. The devaluation of currencies continued to plague the currency trading markets, and confidence in the open market of forex trading was not sustained. Those currencies that had continued to be valued relatively higher remained unchanged and thus kept the concept of trading currency out of those economically strong nations.

The Introduction of the Euro

Though Europeans were already very comfortable with the concept of forex trading, much of the rest of the world were still unfamiliar with the territory. The establishment of the European Union in 1992 gave birth to the euro seven years later, in 1999. The euro was the first single-currency used as legal currency for the member states in the European Union. It became the first currency able to rival the historical leaders in the Foreign Exchange market and create the stability that Europe and the forex market had long desired.