HISTORY OF FOREX

HISTORY OF FOREX
The first existence of FOREX History roots back to money usage of Pharaohs. The Babylon’s used paper, money and checks. The exchange trade in Middle Asia had started with the communities who made trade with each other on their own monetary currencies.

On medieval ages, the merchants were in search of a new payment method. These events lead to the transmission of paper money. The communities which chose to trade with paper money had started to improve.

It is assumed that the current form of FOREX has been reached on 1930’s. In this period London was world’s trade center and Pound was used as basic money currency. II. World War had swung the balance of the economic structure. The British economy collapsed while USA became the leader of exchange market.

In 1944, when the II. World War ended, a conference was held among the 730 representatives of 45 countries in order to determine a new economic order. The main goal was to create a stable ground for ruined economic markets. Within this framework a new agreement, which accepted Dollar as new global monetary unit, was undersigned. In addition to this, other monetary units were arranged parallel to Dollar.

This event was a great success for American Economy and Dollar which experienced an unprecedented economic depression in 1929. When the war ended, dollar took its place at the center. One of the milestone of the FOREX history, it is the most commonly used monetary unit.

The other major contribution of Bretton Woods Agreement is the International Monetary Fund (IMF) that provides economical support to the countries which suffer from disparity at world trade. The fund provides courage and stabilization about developing issues.

At the end of the Bretton Woods Agreement, Europe and Japan lost their function on economic rehabilitation and stabilization. Following USA President Nixon’s speech on 1971, the representatives of ten big member countries of IMF gathered and signed Smithsonian Agreement on December of the same year. The agreement terminated both the dependency of the other currencies to the dollar and the dollar’s dependency on gold. Thus, the agreement paved the path for freely fluctuating exchange rate which would be used extensively on foreign exchange market. The agreement is a new step of FOREX market for the fact of forming current exchange trade, giving opportunity to fluctuate on high exchange rate conditions and taking its place on free market.

In order to prevent the dependency to dollar of other European currencies, (to reach 2.25% fluctuation level), common circulation was decided in 1972. These countries are: Germany, France, Italy, The Netherlands, Belgium and Luxemburg.

The fact of the alteration of exchange rate according to the exchange trade had started freely fluctuating exchange rate in 1971. Freely Fluctuating Exchange period’s main effect to the market is done within the demand and supply rules. The other factors determine the exchange rates are: gross domestic product, unemployment rate, political developments and interest rates. FOREX trade is the last chain of the history.

Today the freely fluctuating exchange model based on demand-supply system is the frequently used application for global market. Simply, if an exchange rate is demanded by everyone, the price will eventually increase; however if another exchange rate is not wanted, the price will fall down because everybody tries to sell it.

All of the major monetary unit’s trade with the value determined with the comparison of other monetary units.

Only in some exceptional situations central banks can interfere on behalf of them to protect their own economies. Freely fluctuating Exchange method is the ideal method for real market conditions.