Forex trading began in 1875 with the discovery of gold standard monetary. Before 1875, most of the countries primarily used silver and gold in the form of international payments. Making transactions utilizing silver and gold were then got hindered by their reduction according to several external factors like rise in the invention of new deposits, which in turn caused a change in demand and supply. This ultimately changed the history of Forex trading forever.
The main objective behind the implementation of gold standard was to guarantee a currency and to set an amount of gold. During this time, currency was backed up by gold and was measured in ounces. Several countries needed huge gold reserves to fulfill the growing demand for currencies. The cost difference of a gold ounce between two currencies then became the overseas exchange rate for those currencies. The Forex history had undergone many changes with the discovery of an international standard by which overseas exchange could continue between different nations. Gold Standard Monetary got broken down when the chaos of First World War with Germany forced the bigger European powers to pay emphasis on the military projects. This financial drainage over Europe had given rise to lack of gold to safeguard the excessive release of currency and found a totally new change in the Forex trading history.
The abolishment of Gold Standard Monetary System made the process of overseas exchange invalid and this altered the way of Forex history. It was a matter of concern for the allied countries and this in turn resulted in a convention which was held at Bretton Woods, New Hampshire in 1994 in order to discuss about and solve this issue. This convention put up the commencement of Bretton Woods Monetary System. Bretton Woods Monetary System explained in the history of Forex market as:
· Method of attaining a fixed overseas exchange rate.
· Gold standard to be substituted with US Dollar as the final exchange currency.
· US Dollar to be the single currency which is backed up by gold.
· Beginning of three international authorities for protecting all types of overseas transactions.
Bretton Woods Monetary System lasted for almost 25 years and then failed on the basis of making US dollar the only currency that is protected by the gold. On 15th August 1971, Federal Government made an announcement to end the gold exchange for US dollars by the overseas banks. Due to this decision, the central banks of the world had to plan how they would continue trading with other nations. The process which was ultimately developed is what is known as the Forex market today. In the Forex trading market, several banks from different nations bring various types of currencies and do the trading of a specific amount of a currency against another currency.