History of Forex Trading and Its Current Development
History of Forex
Well, talking about the development of forex trading, this time I will discuss how the history of forex trading began. Its early development started from the end of the barter era and the beginning of money transactions in the history of human civilization. We know that transactions in ancient times were a barter system or exchange of goods, but over time, barter alone was not enough to meet the needs of the problem: What if we can’t find people who have needs and supplies of goods to exchange like our needs? To overcome this, a means of payment or a means of exchange in various forms was created.
In this period, people in ancient times used shells, beads, rare stones, and precious metals as a means of payment. But it should be noted that each region could apply its own currency based on what was considered the most valuable, recognized by the community, and portable or easy to carry anywhere. Because each region in the world uses a different currency, traders making transactions between regions or cross-island or cross-continental voyages often required a universally accepted currency exchange reference in many locations. It was agreed upon that precious metals such as silver and gold would be used as a means of payment. The kingdoms that stood at that time began to print their own money by determining the content of precious metals in it.
Since when was currency exchange carried out? Based on Byzantine records around the 4th century BC, it shows that the kingdom had a monopoly on money exchange. Then, the Pavirus records also show that currency exchange had been carried out in the ancient Egyptian era. Other regions—from Australia, Indonesia, China, India to Europe—have their own records, so this is not something that suddenly appeared in modern times.
Then, how is the history of modern forex trading? From the explanation above, we know that exchanging money has been going on since ancient times, but the history of modern forex trading as it is now actually only pioneered after World War II, when there was a lot of chaos and economic crisis. At the end of World War II, the governments of the allied countries felt the need for a system that would later be able to unite the global economy. Then, the Bretton Woods system was formed to represent the international monetary management system. In the Bretton Woods system in 1944, for the first time, there was an official rule in regulating monetary relations between countries. The United States, which at that time held two-thirds of the world’s clean gold reserves, ensured this system was based on gold and the Dollar. But in the end, this system required all countries involved to link the value of their currencies to gold and the United States Dollar.
However, this did not last long. Then, on August 15, 1971, the United States unilaterally decided to untie its currency from gold, so that it automatically ended the Bretton Woods system. The value of the dollar was no longer obtained from the gold reserves it had but only from the promises of the United States government. Not only that, but it also made the United States Dollar a reserve currency for many countries in the world. At that time, the exchange rate between currencies was no longer determined by default but by following a simple economic system such as supply and demand.
Then, a new phase in the history of forex trading emerged: the floating exchange rate period or floating exchange rate system. After that, the main currency buying and selling transactions were carried out by banks, while other parties such as the government and companies needed to contact the bank as an intermediary. Companies that needed to transact could contact the bank via telephone, then the bank recorded at what price a currency was purchased or sold. From here, the interbank market was created as a decentralized over-the-counter network where currencies are exchanged and currency exchange rates change dynamically.
We already know now the history of forex trading or currency exchange rates in ancient times. Along with the development of the global economy, between the 80s and 90s, forex trading experienced new developments in its history, where people could participate in a world previously dominated only by large banks and international companies. Everyone could transact through banking intermediaries—no longer having to be represented by telephone contacts but only with internet access. Even a trading platform was created that allows anyone to see prices and trade currencies in real-time.
Technological developments are a crucial point in the history of forex trading because they encourage trading volumes in the market to skyrocket, making it the largest financial market in the world, with daily liquidity reaching 5.3 trillion US Dollars in 2013. At this time, we can also find out which currencies are widely traded and try to profit from the strengthening or weakening of currency exchange rates.
How can we, as ordinary people, profit from currency exchange? Now, there are many Forex brokers who serve currency trading for the community on a small scale. Forex brokers like this facilitate the community to trade forex even with small capital. Even more sophisticated in today’s era, forex trading can be done via laptop, Android tablet, or iPhone. As long as there is electricity and an internet connection, we can enter the Forex market and profit from it—as long as we know how to trade forex correctly.