History of the FOREX market

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History of the FOREX market

The international currency market in that type in what we know it, arose after 1973. The foundation of its contemporary history was laid in the summer of 1944 in the American resort town of Bretton-Vudds. The result of World War II did not raise at anybody doubts any more, and allies were engaged in the post-war financial device of the planet. While economies of all leading states after war were threatened by crash or they had to appear in a vice of military production, the economy of the USA dropped out of the war on rise. And as both winners, and the victims, and defeated needed food, fuel, raw materials and the equipment, and only the American economy could give all this in enough, there was a question, than other countries will pay for it. After war said countries had the little from what could interest in the USA, the gold stock at the USA was the biggest, the majority of the countries hardly in general could brag of a gold stock. In any attempts to adjust trade by means of a currency exchange the price for dollar because of great demand on the American goods inevitably had to rise to such level that all other currencies would depreciate and acquisition of the American goods became impossible.

It is obvious that, on the other hand, it could be considered whose it is necessary a problem, only not the United States, but I understood enough people that such approach and led to World War II. After World War I America "washed hands", having left the international responsibility on a share of other countries. The world experienced strong financial hunger, gold stocks of the countries removed to the USA, other currencies depreciated. Natural, but short-sighted protectionist decisions isolated economies from each other, and the economic nationalism easily got into the political relations, as led to a war.

For prevention of post-war collapse of currencies the financial forum in Bretton-Vudds approved a number of financial institutions, including the International Monetary Fund (IMF). Originally the IMF represented the integrated currency resources where all countries contributed the share and from where each country could take reserves for maintenance of the currency. For U.S. dollar gold contents - the gold standard was recorded ($35 for troy ounce of gold), and other currencies were tied to dollar in a certain ratio. In addition, significant restrictions for daily rate fluctuations were also created.

It should be noted, however, that post-war demand for dollar appeared above all expectations. Many countries sold the currency for purchase of dollars on acquisition of the American goods. The American export much more exceeded import, the deficiency of dollars in the world increased. Resources of the IMF were not enough for loans for the countries for maintenance of their currencies. The answer to these problems was the American plan of Marshall according to which the European countries provided to the United States the list of material resources, necessary for rise in their economies, and the USA transferred them the volume of dollars sufficient for the acquisition specified. These dollars prevented devaluation of other currencies, promoted the new growth of the American export, opening for it all new markets.

At the same time the American presence in all parts of the world shown in maintenance costs of military bases in the American private investments into business of Europe, into activities of the American tourists spending money all over the world gradually filled with dollars foreign banks in the quantities exceeding necessary. In the late fifties of the 20th century the European business did not need former quantity of the American goods any more, having more attractive opportunities of investment, than dollar deposits and therefore did not wish to hold surplus of cash dollars. In the beginning the American treasury was ready to redeem dollars, paying them with the established gold contents, not allowing falling of dollar exchange rate in relation to other currencies. But the gold stream from the USA led to reduction twice of a gold stock in the early sixties. Foreign Central Banks a long time also supported dollar exchange rate in relation to national currencies, buying up the surplus of dollars offered by the population, private banks and business.

The system of fixed exchange rates held on prior to the beginning of the 1970th. By this time the USA had no favorable trading balance any more, other countries sold to America more and more, and bought from it less. Dollars of which got rid abroad settled in foreign Central Banks unpromising, unclaimed goods. Within several years of the USA resisted inevitable dollar devaluation and did not agree to establishment freely of floating exchange rates, but after a number of problems in the early seventies they refused gold providing dollar. From this time the dollar rate is defined by market demand and the offer. Price of gold grew by 1980 almost to $750 for troy ounce. In the late seventies the dollar fell to the post-war minimum, and its further history is series of take-off and falling.

All principal world currencies are in a condition of free floating for today, their price is defined by the market depending on that how this currency is necessary for purchase of goods, investments and interstate calculations. Of course, this "swimming" is not completely free, in each country there is the Central bank which main objective, according to the law, is ensuring stability of national currency. The international currency market of FOREX unites all great number of participants of currencies of exchange transactions: natural persons, firms, investment institutes, banks and Central Banks.

One more important event which substantially influenced the FOREX market took place in 1992. In February of this year the Maastricht Treaty about creation of the European Union was signed. According to this agreement the countries which economy meets the following criteria can become the participant of the economic currency union:

  • inflation does not exceed 3% a year
  • national debt no more than 60% of GDP
  • main discount rate of less maximum value of three smallest rates of the Union plus 2%.

As all know, originally the single European currency was introduced only into electronic circulation, but since the beginning of 2002 entered the cash address.

The main currencies to which share the main volume of all transactions in the FOREX market falls are the US dollar (USD), euro (EUR), the Japanese yen (JPY), Swiss franc (CHF) and the British pound sterling (GBP) today. It is necessary to tell that before emergence of eurocurrency the big market share fell on DM (DEM).

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