This guest article was written by Zahir Shah from MTrading.
Foreign currency exchange is something so common that occurs in one’s everyday life. You may be vacationing in some out of the country getaway and may need to try some foreign food, so you need money from the country you are staying at. It’s needed for you to exchange your current currency into that which you need, and voila! – you have traded currencies.
Forex through the Years
It is interesting to know that currency trading has been existent since the Biblical times. “Money-changing people”, were known to help other people in exchanging their currencies at that time. Without the now existent established markets for currency trading, money-changing people back then had to use city-stalls to conduct currency exchanges.
Currency trading has been developing through the following years. In the fifteenth century, there were records of the need for currency exchanges for merchants. Today, foreign currencies are still being exchanged for the use of modern-day merchants. It is used to pay for people’s salaries, services, and goods.
The Gold Standard
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In 1800, the gold standard was introduced. It is a monetary systemwherein a country’s currency can be converted into a fixed quantity of gold and vice versa. It was mostly used from 1875 to 1914. During these times, the exchange rates were determined by the economic difference for an ounce of gold between the two currencies involved.
The introduction of this system marked the first formal exchange rates, but it was imperfect because it forced countries to reserve large amounts of gold to keep up with the supply and demand fluctuations.
The Bretton Woods System
Because the gold standard was flawed, people needed another monetary system for standardizing exchange rates. The Bretton Woods System, named after the place where the agreement was finalized in, centers on the US Dollar. World currencies’ rates are now fixed on the US Dollar and not on gold. This monetary system, however, only lasted until 1971, for the value of the dollar was weakening because of some economic problems that the United States was facing. In 1973, the value of the dollar was left to float and allowed to fluctuate as those of other nations’ currencies.
Foreign Exchange Market in the Present
It is good that people today have a venue for conducting foreign currency exchanges. People can now trade currencies in the comfort of their own homes, offices, or wherever they are. People involved in facilitating large-scale foreign currency exchange now have an easier way to aid people’s demand for exchanging their needed currency. Foreign exchange trade markets are open for most of the week and are available to those who have internet connections.
Forex trading has come a long way from currency trading in city stalls to the now digitalized and multi-network connected buying and selling of currencies. It has been existing for so long and will still be for many years to come, since there will always be a demand for the exchange of different currencies to effectively make the trade in the world flow.