Forex History In The World

First appeared in 1875, this is an important event in the history of the birth of the money market in the world. Prior to the rule on the gold standard, countries in the world generally use silver and gold as an international means of exchange or means of payment. But there is a problem because gold and silver value is influenced by supply and demand globally. Example course if there is a new gold mine discovery, usually can press on the price of gold. For more information, please visit cfd trading

The idea that eventually brings up the gold standard system is that the government will guarantee a currency exchange rate with the currency on a number of gold, vice versa. That is, the currency can be backed up by a certain amount of gold. That way, it is clear that the government should have gold reserves that can meet if there is a demand on the exchange of currency.

By the end of the 19th century, all the countries with advanced economies had determined a currency that had a value of 1 ounce of gold. Therefore, over time, the price difference of 1 ounce gold between 2 different currencies appears, so it becomes the foreign exchange rate between 2 currencies. This is the beginning of the emergence of foreign exchange in the world.

However, it turns out the gold standard system cannot survive and collapse at the beginning of World War I. Because of the feud with the State of Germany, countries in Europe began to think to complete a large military project. So at that point, they started printing money to finance the project. The financial needs for the project are so large that they lack the gold to back up the money they have printed in large quantities. This ultimately leads to inflation.

  • Bretton Woods System

Towards the end of World War II, the counseling countries in the alliance began to feel that if they had to create a monetary system in order to enter and fill the void arising from the destruction of the Gold System Standard. In 1944 precisely in July, 700 more than allied representatives made a meeting in Bretton Wood, South America. The purpose of this meeting is to produce an agreement known as the Bretton Woods System, this is a form of monetary management internationally.

Determination of Bretton Woods System, among others:

  • Method of using fixed foreign exchange rates
  • USD becomes a substitute for gold standard system and becomes the main currency
  • Establish 3 international bodies to monitor economic activity in the world. The three bodies are International Monetary Fund, International Bank for Reconstruction and Development, and General Agreement on Tariffs and Trad.

While the main feature of this system is the US dollar which became the gold substitute as the main currency exchange in the world. The US dollar is the main currency in the world that will continue to be protected. This then becomes one of the reasons for the Bretton Wood System’s troubles.

25 years after Bretton Wood System, this system gets some problems. In the early 1970s, gold reserves owned by the United States were so small that the US Treasury Department did not have enough gold to bear the US dollar owned by the world’s central banks. Until 1971 exactly in August, Richard Nixon who was President of the United States at that time, took steps to reject the demand for US dollar exchange in gold. This is the end of the Bretton Woods System.

Although this system does not survive the page, the system has a significant impact. The 3 established bodies have transformed into the World Trade Organization.

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