Did you know Forex Trading History?
How long have you been trading forex ? Maybe it’s been a long time.But do you know how the history of the creation of currency trading in this world? Indeed, this topic is not related to your ability to profit in trading, but it never hurts to learn the facts about the business we are involved in. At least we can tell people who want to know about forex trading .
History of Forex
Gold Standard System (Gold Standard System)
The gold standard financial system was created in 1875, which was the most important event in the money market history fund. Before gold standards were created, countries in the world generally used gold and silver as an international means of payment. The main problem of using gold and silver for payment instruments is that the value of these two precious metals is strongly influenced by global demand and supply. For example, the discovery of a new gold mine usually (at that time) would suppress the price of gold.
The idea underlying the creation of this gold standard system is that the government guarantees the exchange rate of a currency against a number of gold, and vice versa. In other words, a currency is backed upby a certain amount of gold. Thus it is clear that the government needs a sufficient amount of gold reserves to meet the demand for currency exchange. During the late 19th century, all developed economies had a number of currencies worth an ounce of gold. Over time, the price difference between one gold ounce between two different currencies becomes the foreign exchange rate between the two currencies. This is the initial definition of foreign exchange in history.
The gold standard turned out to have collapsed during the beginning of World War I. Due to rising tensions with Germany, countries in Europe felt that they had to complete large military projects. So they started printing money to finance these projects. The financial burden of these projects is so large that there is not enough gold to back up the money that has been printed in large quantities. Inflation.
Although the gold standard would make a small comeback during the years between the wars, most countries had dropped it again by the onset of World War II. However, gold never stopped being the ultimate form of monetary value.
Although the gold standard was once again used after World War I, most countries again “damaged” the system at the start of World War II. Even so, gold never stops the best foreign exchange reserves.
Bretton Woods System
Towards the end of World War II, countries belonging to the Allied alliance felt that they needed to build a monetary system to fill the void due to the abandonment of the gold standard system. In July 1944, more than 700 Allied representatives held a meeting in Bretton Woods, New Hampshire, United States. The aim is to produce an agreement that we know as the Bretton Woods System as a form of international monetary management.
In short, Bretton Woods sets the following:
- Is a method with fixed foreign exchange rates
- The US dollar replaces the role of the gold standard as the main reserve currency
- The establishment of three international bodies to monitor world economic activity: International Monetary Fund (IMF), International Bank for Reconstruction and Development, and General Agreement on Tariffs and Trade (GATT).
A key feature of the Bretton Woods system is that the USD replaces gold as the main standard of exchange rates for world currencies.Furthermore, USD is the only eye in the world to be protected by gold reserves. This is what later became the main reason for the failure of the Bretton Woods system.
In about 25 years later, the system experienced several problems. In the early 1970s, the United States (US) gold reserves were so small that the US Treasury did not have enough gold to finance all the USD held by the central banks of countries in the world. Finally, on August 15, 1971, then US President Richard Nixon took steps to treat all USD exchange requests for gold. This is the end of the Bretton Woods era.
Although the Bretton Woods system did not last long, the system left a mark that still has a significant impact to this day. The trail lags behind in the form of three bodies formed when the system was formalized, namely the IMF, the Bank for Reconstruction and Development (now part of the World Bank) and GATT, which later transformed into the World Trade Organization (WTO).
Such is the small history of the world of currency trading. At least you now have a topic to chat in the cafe.