The history of the foreign exchange market
In 1967, a Chicago bank refused to a university professor named Milton Friedman loan in pound sterling because he wanted to use this fund for short pounds. Mr. Friedman was aware of the £ against the U.S. dollar is too high, would like to sell the pound, and then wait and then buy back the pound pound fell to repay bank, from which we can quickly make a. The bank refused to provide loans based on 20 years ago to establish a “Bretton Woods Agreement.” This agreement fixed national currencies against the U.S. dollar and U.S. dollar and gold parity set to 35 U.S. dollars to the ounce of gold.
The Bretton Woods Agreement signed in 1944, have sought to prevent the currency in inter-State to escape, limiting the international currency speculation, in order to achieve the international monetary stability. In this agreement, the gold exchange standard between the First World War in 1876 to dominate the international economic system. Gold exchange standard, the currency in support of the price of gold reached a new stable stage. Gold exchange standard system, the abolition of the old days, kings and rulers of arbitrarily belittle currency, inflationary behavior.
However, the gold exchange standard system is not perfect. As a country’s economic strength, it will be a large number of imported goods from abroad until it runs out of gold required to support the national currency reserves. As a result, money supply tightening, raising interest rates, slower economic activity until the recession. In the end, commodity prices hit bottom, and gradually attracted to other countries, Fun to ride a large number of buying goods in the country. This will be the country back into gold, until the increase in the country’s money supply and decreasing interest rates and re-creation of wealth. Such “boom – bust” pattern throughout the Gold Standard era, until the outbreak of World War I interrupted trade flows and free movement of gold.
Wind and rain havoc in several of the war, the Bretton Woods Agreement introduced. Signatory countries agreed to try to maintain their currencies against the U.S. dollar exchange rate, and, when necessary, the corresponding ratio for gold, only allow a smaller fluctuations. States to prohibit trade in order to obtain the benefit of depreciation of their currencies, only allowed within the range of less than 10% devaluation of the currency. Into the 50’s, the growth in international trade led to a result of post-war reconstruction and the transfer of funds generated by large-scale, which makes the Bretton Woods system established by the loss of a stable exchange rate.
This agreement was finally abolished in 1971, the dollar will no longer be exchangeable into gold. By 1973, the major industrial countries more freely floating currency exchange rates, mainly from the foreign exchange market on the regulation of money supply and demand. As the trading volume, transaction speed and price volatility in the 20th century, 70 years in the overall growth of the floating daily price ratio, new financial instruments gradually come out, market liberalization and trade liberalization can be achieved.
80 years in the 20th century, with the advent of computers and related technologies, to accelerate cross-border capital flows will be in Asia, Europe, America and other continents together into one time zone for the market. Foreign exchange transactions increased from the mid-80s at about 70 billion U.S. dollars a day shot up to 20 years later, today’s 1.5 trillion U.S. dollars a day.
The expansion of the European market
Vigorous development of foreign exchange trading is one of the major contributing factor to the rapid development of the Eurodollar market; in the Eurodollar market, the dollar is deposited in banks outside the United States. Similarly, the European market means the assets are held in the currency markets outside the country of origin. The Eurodollar market was originally formed in the 50’s, when Russia will be its oil earnings (dollars) deposited outside the United States in order to avoid U.S. dollar deposits by the U.S. government to freeze risk. This form from the U.S. government control of the huge off-shore U.S. dollar treasury. The U.S. government imposed laws to restrict dollar lending to foreigners. As the European market more flexible and higher returns, it is particularly attractive. From the late ’80s, U.S. companies began to borrow from offshore funds raised, after the market and found that the European market for holding excess liquidity, providing short-term loans and financing imports and exports is very convenient.
London was (and still is) a major offshore markets. In the 80’s, the Bank of England to maintain its global dominance in the financial industry began to pound the U.S. dollar as an alternative currency for lending, thus becoming the center of the Eurodollar market. London’s convenient geographical location (between the market between Asia and the Americas) also contribute to the local remained at the leading position in the European market.
