A Historical Perspective Of The Foreign Exchange Market
Currency trading has a long history and it can be traced back to the ancient Middle East and Middle Ages, centuries ago, when the foreign exchange started to take shape after the international merchant bankers devised bills of exchange, which were transferable third-party payments that allowed flexibility and growth in foreign exchange dealings.
The modern foreign exchange market characterized by the consequent periods of increased volatility and relative stability formed itself in the twentieth century. By the mid-1930s, London became the leading center for foreign exchange and the British pound served as the currency to trade and to keep as a reserve currency. Back then, the foreign exchange was traded primarily on the telex machine or cable, and thus, that is where the pound inherited it’s nickname “cable”.
In 1930, The Bank for International Settlements was established in Basel, Switzerland, to oversee the financial efforts of the newly independent countries that emerged after World War I. They also provided monetary relief to countries experiencing temporary balance of payments difficulties.
After World War II, when the British economy was virtually destroyed and the United States was at that time, the only country unscathed by the ravages of war, the U.S. dollar then became the prominent currency of choice for the entire globe. To this day, currencies from around the world are generally quoted against the U.S. dollar.
