Net-Teams, Inc.
HOME | Membership Websites | SMM Solutions | CRM Solutions | Online Training Systems | Publishing | Clients | Guarantee | Log In

Why Learning The History Of Forex Can Help You Today

Submitted by Socorro Beard | RSS Feed | Add Comment | Bookmark Me!

Back in the days when kings thought they had a divine right to rule, they often wanted more money than their parliaments granted them. But most parliamentary bodies didn’t consist of fools; they certainly knew better than to leave the powerful tool of taxation solely in the king’s hands.

Without being able to tax to his heart’s content, the king’s other financial weapon was to devalue his country’s currency: recall all gold and silver coinage, melt it down, then reissue it in a lighter weight or with base metals mixed in, pumping up the royal treasury with the extra. Because the currency was backed more by the citizens’ confidence in the stability of their country than with anything else, many people never even noticed, and the king got his way in the end.

But sometimes people did notice, and sometimes they weren’t all that confident of the stability of their country, say, if a powerful enemy was threatening to invade. When that happened, often merchants refused to accept the devalued coinage in trade, demanding real gold or silver instead and rendering the king’s currency valueless. Such undermining of the currency could lead to a rapid collapse of the king’s government.

In the eighteenth and nineteenth centuries, the increasingly republican governments of the western world began basing their currencies, not on confidence in the government, but on gold. This prevented their rulers from devaluing the currency, but it had its own problems.

The gold standard lead to a cycle of boom and bust: a financially strong nation would import the goods its citizens wanted, leading to an outflow of capital until the money supplies shrank too far, in turn leading to higher interest rates and lower prices because nobody had enough money to buy anything. Then other countries would see the low prices and start importing the first nation’s goods, leading to an outflow of production but an inflow of money, pushing down interest rates and raising the standard of living again.

This boom-bust pattern continued in many western countries until World War I interfered with trade and stopped the flow of money across borders. The pattern resumed after the war and throughout the Roaring Twenties, until the 1929 stock market crash devalued the U.S. dollar and caused a worldwide depression. It was only relieved in the U.S. by the economic boom of World War II, when the production of war materials and the drafting of men into the military forces cured the problems of unemployment and high prices.

But although the Second World War eased economic ills in the U.S., it caused them in other countries, which had to purchase the war materials they couldn’t manufacture themselves. This led to an agreement known as the Bretton Woods Accord, signed in New Hampshire in 1944 and designed to create a stable post-war economy where the nations of the world could recover financially.

The Bretton Woods Accord “pegged” the value of the major world currencies to the U.S. dollar, making it the benchmark that measured all other currencies. It also pegged the U.S. dollar to the price of gold at $35 per ounce, and it created the International Monetary Fund (IMF), a confederation of 185 nations around the world, dedicated to fostering economic stability and high employment.

For decades, the Bretton Woods Accord worked well. But in the early 1970s, international trade grew to such an extent that currency rates could no longer be contained. Finally, in 1973, President Richard Nixon allowed the U.S. dollar to be taken off the gold standard, and the complex arrangement of currency values was abandoned.

The major currencies of the world have come full circle: just like in the old days of kings, the currencies are controlled by the market forces of supply and demand, without being pegged to any other currency or to any precious metal. (Some of the smaller nations of the world prefer to peg their currency to that of their major trading partner, like some Caribbean nations with the United States.) This created the Forex market, where one currency can be traded against another with the expectation of earning profit from changes in their relative values.

At first only major commercial and central banks traded the Forex. But as it became better known, hedge funds, mutual funds, large international corporations, and some super-wealthy individuals discovered it. By the 1980s, about U.S. $70 billion per day was changing hands.

The explosion of the Internet and the rise in computer security systems brought Forex trading online. With trades able to be placed independently of any bank, there was no longer any need to wait for business hours, and traders began dealing across time zones and around the globe.

In 2000, the U.S. Congress passed the Commodity Futures Modernization Act, which opened the Forex to the average investor. Retail brokerages sprang up across the Internet. Today about U.S. $1.5 trillion is traded per day; 5% of that amount is currency conversion by travelers, banks, and international corporations. The remainder is trading for profit.


Contact Us
Support and Sales
Contact Us

LinkedIn Recommendation: Wendy Acosta - Owner, Possibilities Unlimited, LLC - I have worked with many 'experts' in the technology field, yet none can surpass the level of knowledge, expertise and creativity that Teo brings to the table. When I need a problem solved, or a foundation built that will evolve and grow as my projects grow, Teo is the only person I call. - January 20, 2011, Wendy was Teo's client

Welcome!

Search Articles On Net-Teams

Featured [business] Articles:
Net-Teams - Helping Businesses Prosper With Custom CRM, SMM and Online Training - Net-Teams, Inc. (NTI) is a technology and marketing firm and offers access to a core set of system t...
The Benefits Of A Membership Program For Your Website - Building membership through your website allows you to automate the acquisition of prospects and cus...
eWorkshop Hosting - The More Effective Way to Build Your Business with Online Ed - More and more companies are using eWorkshops to reach out to customers, prospects and employees. An ...
eWorkshop Publishing From Net-Teams - As many people are discovering, self-publishing is a time consuming venture, which takes time away f...
What is Social Media Management And Why Is It So Critical? - Whether or not you have a customer relationship management (CRM) system in place, there is one key r...

Related Tags (related articles): business (3123), forex (333), forex software (10), forex trading software (11), forex tips (8), forex broker (47), forex pips (6), (19087)