The act of exchanging fiat currencies, known as forex trading, is estimated to be centuries old, dating back to the Babylonian period. The forex market is now one of the world’s largest, most liquid, most accessible markets, and it has been shaped by major global events such as Bretton Woods and the gold standard.
It’s critical for forex traders to grasp the market’s history and the main historical events that have shaped it. This is due to the fact that comparable occurrences could recur in different but similar forms, affecting the trading environment. History has a habit of repeating itself.
Where It All Began?
The barter system, which was established by Mesopotamia tribes about 6000BC, is the oldest means of trading. Products were swapped for other goods under the barter system. After that, the system expanded, and commodities such as salt and spices became common means of exchange. In the first known form of foreign exchange, ships would sail to barter for these products. The first gold coins were manufactured as early as the 6th century BC, and they served as a form of currency because they possessed important features such as portability, durability, divisibility, uniformity, limited supply, and acceptability.
Gold coins were widely accepted as a medium of exchange, but their weight made them unworkable. Countries adopted the gold standard in the 1800s. The gold standard ensured that any amount of paper money would be redeemed for its gold worth by the government. This functioned great until World War I, when European countries were forced to abandon the gold standard in order to print more money to fund the war.
At this time and in the early 1900s, the foreign currency market was underpinned by the gold standard. Countries traded with one another because they could exchange their currency for gold. The gold standard, on the other hand, was unable to withstand the two world wars.