The History of Forex
The foreign exchange market is an important event in the economic life of the global community. It is no surprise that Forex has its history of rise and development. Moreover, the roots of establishing the currency market go back to the middle of the 19th century, when a unified system named the Gold Standard was adopted in the French capital of Paris.
According to the adopted standard, gold became the unit of international cash settlements. The precious metal had to have conversion corresponding to its quantity. Transnational exchange with national currencies was performed in accordance with fixed rates that were calculated against the gold equivalent.
The introduction of the Gold Standard allowed to have a significant decrease of inflation level and to take control over the issuance of monetary assets that were not supported with gold reserves. It is no coincidence that gold was selected as a common currency. This was stipulated by its high value, possibility of correct determination and its divisibility. As the time passed, gold was replaced with its paper equivalent - certificates.
The Gold Standard underwent significant changes in the course of World War I, when the countries that were involved in the war had to make huge injections of funds in order to cover their military expenses. That caused the reduction of gold reserves of the countries that were at war. This led to abandoning the Gold Standard.
After the Global crisis of the 1930s significantly weakened the economies of the leading countries, the period of recovery and development began. However, this process was stopped and reversed by World War II that soon broke out. Only in 1944 did the Bretton Woods Conference held in the United States put an end to continuous competition of the countries - Great Britain and the USA. That conference resulted in adopting some basic principles that marked the beginning of a brand new system for arranging trade settlements.
Also, the Bretton Woods Conference established the following patterns of the global economy:
- The US Dollar became the main currency for international settlements;
- The countries that participated in the conference fixed their national currencies to the US Dollar;
- The main currency, i.e. the US Dollar was fixed to gold;
- It was then that the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) known to the present day were established and began their activities.
According to the provisions of the Bretton Woods Conference that came into effect, the British pound, which up to then was dominant, was to give the place of the main currency to the US Dollar. Such a fact as fixing international economic relations to the common currency, which was prone to continuous depreciation, led to frequent crisis developments in the global economy. It was becoming evident that countries had to abandon fixation of their national currency rates to the US Dollar. This way, at the beginning of the spring of 1973, at a regular International conference held in Jamaica, it was officially announced that fixing of currencies to the US Dollar would be abandoned. However, there was no decision ready at that moment. Only three years later, again in Jamaica, significant amendments were made in the IMF Charter, and a new economic model was defined that became the prototype of the Forex market. The main changes involved abolishing obligatory fixed currency rates, notions of floating and mixed rates were introduced; fluctuation of national currency rates became free and depended on natural factors; most countries abolished currency restrictions; and gradual transition from cash payments to electronic transfers was introduced, etc.
As the Forex market developed, experienced specialists emerged; they tracked attentively the slightest fluctuations of national currencies, their growth (or fall) dynamics. Those observations determined the best moment for sale (purchase) of a certain currency virtually unmistakably and, correspondingly, provide equal rights and opportunities for making profit to all participants of the global market. Besides, the Forex market made currency a commodity, which reflected the real value of national assets with maximum accuracy. For instance, as economy grows, the rate of the national currency grows proportionally, and in case of its recess, its currency falls.
The Forex market came to Russia at the beginning of the 1990s. In the course of development of free economic relations, the most proactive banks quickly understood the principles of profit-making from Forex operations; they realized that they could have huge gains by just careful studying of the dynamics of the currency market. Every year, the number of those who desire to grow rich at Forex has only been growing.