Forex History Primer

By: John Truman
Submitted: 2007-01-17 16:15:10
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Forex History 101

Although there is some debate about when foreign currency trading officially started, the general consensus is that it started in the early 1900s. During this period, London was the center of the forex trading world and therefore the pound became the pre-eminent currency. Central Banks use to keep the pound as the reserve currency.

Before personal computers and the internet became prevalent, the only way banks could exchange currencies amongst themselves was through Telex Transfers (called cable transfers back in the day). That is why many traders still refer to the pound as cable.

In 1944, the Bretton Woods Agreement was signed to increase international monetary stability by preventing money from fleeing across nations, and restricting speculation in the world currencies. Countries were prohibited from devaluing their currencies by more than 10%. In the early 1950’s however, the expanding volume of international trade cause the exchange rates set-up under Bretton Woods to dramatically change.

After World War II the European economies were severely depressed and the US became the new global currency (because the US was unaffected by the war). Even today, most currency pairs are traded against the USD however in recent months, the Euro has become a serious contender.

It was in 1971 that the Bretton Woods agreement was abandoned. By abandoning this agreement, the forces of supply and demand started to control currency exchange rates.

Check out http://www.theinterbank.com for more trading information

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