RSSThe Development of Forex Trading and the Worldwide Market
Apr 13
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Till World War I it was always in prinicple feasible to go to the central bank and ask for gold or silver in place of your bank notes. Of course, this very rarely occurred in important amounts and many countrywide banks stopped keeping enough gold to cover. Now and then, however, such as in Germany after World War I, there would be a disastrous run on the banks, leading to silly inflation and the breakdown of the national economy. This was a major factor in the rise of the German fascist party and so might be said to have caused world war 2. To prevent an analogous disaster happening in a defenseless nation again, the Bretton Woods agreement was drawn up in 1944. This ‘permanently’ pegged all national currencies to the US greenback, and fixed the value of the dollar against gold at $35 per oz. Round the same time, the international financial Fund and World Bank were made to help in maintaining international business stability.
This held until the early 1970s. But nations were developing at different rates and in different directions, and in 1971 President Nixon postponed the gold standard. The US dollar was dropped as a reference point for the majority of the major national currencies, and the relative values of different currencies began to fluctuate according to industrial conditions and market forces. Suddenly it was possible to trade in currencies, and the financial establishments were quick to recognize the potential. Steadily, private backers joined in the game and the foreign exchange market mushroomed. To accommodate the massive numbers of potential new clients and because their costs were dropping, brokers commenced reducing the minimum investment amount.