The Forex history

The beginnings of the Forex market lay around 1867 when the “gold standard” started to be used. The “gold standard” allowed national currencies to be exchanged only for gold, assuring the return of the money and preventing the acceleration of inflation by government money emission.

Growing economies based on increased import needed huge quantities of gold which drew to draining the gold resources. These economies faced now the reduction of the activity almost to recession. As a consequence the prices went down and other countries started to import from them. Now the economies started to recover and even strengthen by the time of the First World War.

In July 1944 the Bretton Woods Agreement was signed by delegates from all 44 Allied Nations at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, United States. The main features of the agreement include the replace of the gold standard by the US dollar, link the dollar to gold at a rate of 35 dollars per ounce and the creation of three international organizations to supervise economic activity: International Monetary Fund (IMF), International Bank for Reconstruction and Development, and the General Agreement on Tariffs and Trade (GATT). The agreement established that all the currencies are defined in relation to the dollar itself convertible into gold, making the US dollar effectively the world currency.

In August 1971 United States president Richard Nixon announced to the world that it would no longer exchange gold for the U.S. dollars that were held in foreign reserves, marking the end of Bretton Woods.

By 1973 currencies of the major industrialized nations were freely convertible and the exchange rates depended on demand-supply correlation. This period of time marks the beginnings of the modern foreign exchange market.

Since the 1970s the foreign exchange market expanded and evolved developing into one of the largest and most liquid financial markets in the world.  Forex is the closest market to the ideal perfect competition mentioned in economic theories. The main markets are the United States, Great Britain and Japan. The first two account for more than 50% of the market transactions. Trading activity reaches the highest point when all important markets are opened.

In 2007 average daily turnover in Forex was estimated at $3.98 trillion. By far London is the biggest center of foreign exchange accounted for 34% of the daily turnover, taking advantage by its geographical position and operating during both Asian and American markets.

In 2008 the first three currency traders were accounted for almost half of the overall volume: Deutsche Bank (Germany) - 21.70%, UBS AG (Switzerland) - 15.80%, Barclays Capital (United Kingdom) - 9.12%.
The most traded currencies are United States dollar USD  - 86.3%, Euro EUR - 37.0%, Japanese yen JPY - 17.0%, Pound sterling GBP - 15.0%, Swiss franc CHF - 6.8% (daily share of 200% market turnover in 2007).