The foreign exchange market (Forex, FX or currency market for short) is a financial market scattered around the world for trading currencies. Except for Saturdays, Sundays and major holidays in the country where the trading center is located, financial centers around the world operate in turn according to their location, enabling the foreign exchange market to trade various currencies 24 hours a day.
The foreign exchange industry has a very "heavy" history, and it is still an unparalleled financial market today. Its volume is unmatched so far, and no one can clearly foresee what it will become in the future. Healthy, orderly and transparent is every foreign exchange person's expectation for the prospect of this industry. We just look at it now, and there are many things that make people feel interesting, even magical.
With the development of foreign exchange trading, more and more people start to learn and invest in foreign exchange trading. Do you know when the origin of foreign exchange is? How did it develop from ancient times to modern times? Is foreign exchange trading only available in modern times? Today we will take you to understand the origin and development of foreign exchange.
Formation of Ancient Forex Trading
Forex trading is by no means new, the earliest trading history can be traced back centuries. Different currencies and the need for exchange have existed since the Babylonians. It is believed that the Babylonians were the first to use paper money and receipts. Speculation almost never took place, and of course at the time, there would have been a backlash against speculation as large as it is in the market today.
At the time, goods were valued in terms of the prices of other goods (also known as bartering). The limitations of this system gave rise to more generally accepted mediums of exchange. It is important to have a common foundation of value that can be created. Teeth, feathers and even bones served this purpose in some economies, but quickly turned to various metals, especially gold and silver, as accepted means of payment and reliable stores of value.
Then, during the period of the Talmud, "exchange merchants" had already appeared. They mainly helped others exchange currency, and then charged commissions or fees. These people occupy a small corner in a city, or set up a stall outside a temple frequented by Gentiles.
Around the 4th century AD, the Byzantine government took control of a company that monopolized foreign exchange transactions.
In 1472, the world's first truly formal "bank" appeared in Tuscany, Italy - Banca Monte Dei Paschi di Siena. The bank is still in operation to this day.
In the 15th century AD, in order to meet the currency exchange needs of textile merchants, the Medici family opened banks abroad and began to use the "current account book" to process transactions. Such ledgers can show foreign exchange accounts, as well as domestic currency accounts with foreign banks.
The foreign exchange market in Amsterdam remained active during the 17th and 18th centuries. Agents and merchants in the UK and the Netherlands have very frequent exchanges of foreign exchange.
The Origins of Modern Forex Trading
The modern foreign exchange market was formed in the 1970s. For the previous 30 years, the government restricted foreign exchange transactions. The Bretton Woods system after World War II established the currency management rules for business and finance in the world's major industrial countries.
In the United States in the 1850s, a company called Alexander Brown & Sons began trading foreign exchange and it was considered a leading market player. The pioneers of foreign exchange trading in American history also include JMDo Espirito Santo de Silva, who was allowed to conduct foreign exchange trading in the 1880s.
In 1880, the monetary system with gold as the standard currency was formed. Because of this, many of us consider this year to be the beginning year of modern foreign exchange.
From 1899 to 1913, foreign exchange reserves increased by 10.8%, while gold reserves only increased by 6.3%, which symbolized that the emerging foreign exchange market was gradually valued.
In 1902, in this year, two foreign exchange brokers appeared in London. In 1913, almost half of the world's foreign exchange transactions were conducted in sterling. This is of great significance to the formation of the British capital market. The number of foreign exchange banks in Britain rose from three in 1860 to 71 in 1913.
Although the pound sterling pretty much dominated forex trading at the time, the UK itself was absent in the early years of the 20th century. The most active centers of forex trading are Paris, New York and Berlin. London and the entire British Empire were relatively silent until 1914.
It wasn't until 1914 that the Federal Reserve System was established and the U.S. banking system began printing its own currency, the U.S. dollar. In the 1920s, some families began to grow into important figures in the foreign exchange industry.
1930. The Bank for International Settlements is established in Basel, Switzerland. The bank was established to provide financial support to newly independent countries and countries facing temporary deficits in their balance of payments.
After World War II, the Bretton Woods agreement was signed. According to the agreement, the exchange rates of the currencies of various countries against the U.S. dollar can only fluctuate within 1% of the legal exchange rate. Later, President Nixon abolished the Bretton Woods agreement, and the fixed exchange rate became invalid. Since then began to usher in the floating exchange rate system.
From 1972 to March 1973, the foreign exchange market was closed due to the impact of the Bretton Woods agreement and the European joint floating agreement.
1973 was a true turning point in the history of the modern forex market. In this year, the era of exchange rate constraints between countries, bank transactions and restricted foreign exchange transactions ended, and the market began to enter the era of comprehensive floating exchange rates.
The impact of world wars on the development of foreign exchange
Long before World War I, most central banks backed their currencies against gold. However, the gold trading standard has its weakness of wild ups and downs. As the economy strengthens, a country will import gold in large quantities from abroad until it depletes the gold reserves it needs to back up its currency. As a result, the money supply shrinks, interest rates rise, and the economy slows to recessionary proportions.
Eventually, commodity prices bottomed out, which was attractive to other countries, who would buy gold aggressively, energizing their economies until the money supply increased, interest rates fell, and the economy recovered.
However, for this type of gold transaction, the central bank does not necessarily need to fully cover the government's foreign exchange reserves. This situation is not common. However, when a group mentality fuels the catastrophic notion of a massive conversion into gold, panics can lead to so-called "bank runs." In the absence of gold as a reserve, a massive supply of paper money would lead to devastating inflation, which would lead to political instability.
The Great Depression and the removal of the gold standard in 1931 caused a severe stagnation of foreign exchange market activity. From 1931 to 1973, the foreign exchange market experienced a series of changes. These changes had a huge impact on the global economy at a time when there was little speculation in the foreign exchange market.
In order to protect the interests of the country, enhanced foreign exchange controls were introduced to prevent market forces from penalizing the currency.
At the end of World War II, the Bretton Woods agreement was reached in July 1944 at the initiative of the United States. A conference in Bretton Woods, New Hampshire, rejected John Maynard Keynes' proposal for a new world reserve currency system based on the dollar.
International institutions such as the International Monetary Fund (IMF), World Bank (World Bank) and the General Agreement on Tariffs and Trade (GATT) were created as the emerging victors of World War II sought to avoid the volatile currency crises that led to war.
The Bretton Woods agreement established a system of fixed exchange rates that partially restored the gold standard by fixing the dollar-gold rate at $35.00 an ounce and pegging other major currencies to the dollar.
In the 1960s, the Bretton Woods system came under increasing pressure as countries' economies moved in different directions. A series of adjustments kept the system afloat, but eventually Bretton Woods collapsed in the early 1970s after President Nixon announced a moratorium on gold convertibility in August 1971. Under the enormous pressure of growing US budget and trade deficits, the US dollar is no longer suitable as the only international currency.
Forex trading has grown over the past few decades to become the largest global market in the world. Most countries have removed restrictions on the movement of funds, and the market is free to adjust foreign exchange rates according to their perceived value.
The EEC introduced a new system of fixed exchange rates, the European Monetary System, in 1979. After signing the Maastricht Treaty in 1991, Europe continued to seek currency stability. This treaty was not only to fix the exchange rate, but in fact in 2002 the respective coins and banknotes of the Eurozone countries were replaced by the Euro.
London is still the main offshore market. In the 1980s, London was a key center for the Eurodollar market. To maintain their leading position in global finance, British banks began lending in dollars instead of pounds.
The current status of the global foreign exchange market
Currently, the size of the foreign exchange market dwarfs that of any other investment market. The foreign exchange market is the largest financial market in the world.
There are more than 30 major foreign exchange markets in the world, which are located in different countries and regions on all continents of the world. According to the traditional geographical division, it can be divided into three parts: Asia, Europe, and North America. Among them, the most important ones are London, New York, Tokyo, Singapore, Frankfurt, Zurich, Hong Kong, Paris, Los Angeles, and Sydney.
In terms of the global foreign exchange market, the United Kingdom ranks first, with an average daily transaction volume of 3.58 trillion U.S. dollars; the United States, which ranks second, is 1.37 trillion U.S. dollars; Singapore's foreign exchange market ranks third with 633 billion U.S. dollars; Hong Kong ranks fourth with a difference of US$632 billion, and Japan ranks fifth with an average daily trading volume of US$376 billion. It is worth noting that China (Shanghai) entered the list of the eighth largest foreign exchange trading center in the world with US$136 billion.
The U.S. dollar still maintains its global currency dominance, accounting for 88% of all traded currencies, while the euro's share of transactions has increased to 32%. In contrast, the Japanese yen fell by about 5%, but is still the third most actively traded currency (accounting for 17%); followed by the British pound (13%), the Australian dollar (7%), and the Canadian dollar (5%) and the Swiss franc (5%).
Now the foreign exchange market has developed into a 24-hour non-stop financial market with a daily trading volume of 6.6 trillion US dollars. As the most liquid market in the world, its scale far exceeds that of other financial commodity markets such as global stock markets and futures.
As the most "clean", fair and transparent speculative market, it is believed that more and more investors will participate in it. Simply put, the foreign exchange market presents enormous opportunities to make money for the modern astute investor.
Good luck with the transaction
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