The History of the Foreign Exchange Market

by David Charles (31.07.2018)

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Understanding foreign exchange rates is one of the most important things for travelers around the world. It helps them take a better decision and save money when exchanging currencies.

The foreign exchange market has dramatically evolved over the years. There are a number of currency exchanges in Canada that are offering online services. For example, a currency exchange in Toronto enables its clients to do the transaction over a phone and transfer the money either on the same day or the next business day.

To get a better understanding of the market, it is important to know where it all started. Let’s take a look at the history of the foreign exchange market to get a complete picture of how it all began

History – The Greek and Egyptian Era

It goes back 2500 years ago when the Greek and Egyptians used to trade currencies and goods with molten gold and silver coins. The value of these coins used to be determined by their size and weight.

500 hundred years after that, the currency trading took a new turn. A government-run monopoly was formed by the Roman empire that led to the centralization of currency minting. You can see the same structure today where central banks print money and devise the monetary policies of a country.

Currency Trading in the Middle Ages

If you go back 1000 years in the middle ages, copper was the popular metal used in coin minting for trading purposes. Using copper enabled people to mint coins that have a lower value. Today, 1 cent comprises 97.5 percent zinc and 2.5 percent copper.

It was in the middle ages when the oldest bank in the world was created. The name of the bank was Monte dei Paschi and it was formed in Italy. The only purpose of this financial institution was to facilitate people in carrying out currency transactions.

First Forex Market

Around 500 years ago in Amsterdam, the first forex market was formed. That was the place where the forex trade began and eventually spread throughout the world. The stability in currency exchange rates was achieved through the possibility of freely trading currencies.

The Gold Standard was introduced back in 1875. Under this standard, a country was only allowed to mint currency equal to the value of the gold reserves it has. The purpose of imposing this standard was to maintain the value of a currency. But after the first world war, the financial situation changed, and countries had to print more currency to meet their expenses. This led to the end of the gold standard era.

By 1913, London experienced a massive progress as the forex firms increased from 3 to 71 within just ten years. 50 percent of all the foreign exchange transactions were done using the Pound Sterling. 90 years later, the pound was still in the 4th position among the most-traded currencies; USD was in the first place, followed by Euro and Japanese Yen.

Second World War

The Bretton Wood system was formed during the second world war. It came right after the gold standard. But it didn’t last long as Richard Nixon ended it during his presidency.

All in all, the currency exchange market has dramatically evolved over the years. Today, it is much more complex. Many people have a misconception that if you invest a large sum of money, the return will be higher. But this is not true. The forex market is a highly volatile market and if you have no experience, you might end up losing all of your money. Therefore, start with the basics. Learn different concepts and jargons used in the market and seek the advice of an expert. This will help you get a better understanding of the market.

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