FOREX: History of the foreign exchange market (of bretton woods to the deregulation)

To begin to speak about the history of the foreign exchange market to which it belongs FOREX it is necessary to begin in 1944 with the agreement of Bretton Woods. This agreement arose after Europe, due to the wars in which it was bottled, had remained ruined and weak economically. This economic weakness propitiated that the United States had a currency much more valued with regard to the Europeans, the phenomenon of the flight of capital being generated this way: In effect, since to invest in Europe was going out much less costly, the American investors were taking his capital to this place, debilitating moreover the European economy. This way, in these days one lived through a period of big economic instability.


This economic instability was due principally to the fact that in the times previous to the agreement of Bretton Woods – that marked the beginning of FOREX - the boss of measurement of the value of a currency was the gold. The gold standard was generating a quite unstable economic phenomenon, since in general the countries were supported in a constant swinging: From the economic prosperity to the recession, from the recession to the prosperity. This swinging was appearing principally because when the countries were enjoying a good economic moment they began to import many goods and services of other countries that did not have enough resources, this way, the strong country was spending gradually his golden reservations up to remaining without resources. When this happened, then another prosperous country was coming economically and was doing the same, this is, it began to provide him with gold buying to him goods and services to low cost until it was giving him enough resources as to recover economically but to proper coast. This way, the international panorama was reflecting a quantity of countries that were going on from the recession to the prosperity and from the prosperity to the recession.


To avoid this one instability there was signed the agreement of Bretton Woods, which meant the beginning of the foreign exchange markets as it it is the FOREX. The way of establishing this stability was to place the price of the dollar to US 35 for golden ounce and to value other coins taking them with regard to the dollar. This way, the dollar turned into the boss of international measurement with regard to all the coins. Another important measurement (between many others) was that of prohibiting to the countries to devaluate or value skillfully his currency for the purpose of strengthening his commerce with regard to other countries.


With these measurements one managed to avoid the flight of capital of the countries from a stronger country economically towards one that was weak and it would keep on weakening for this reason. Also one managed to put a limit adapted to the speculative deals that were sharpening the stability crisis.


Further on, in 1971, the agreement of Bretton Woods was abolished. Between the reasons by which this one was abolished there is the agudizamiento and strengthening of the economic sector of the construction after the European wars a few years earlier and at the beginning of the 70s. In effect, the strengthening of the construction generated an unmanageable situation of instability of the international market, which affected the foreign exchange market, to which FOREX belongs.


On having given in the agreement of Bretton Woods, there gives in the beginning of the history of FOREX but in turn there enter heyday many other possibilities of investing in currencies. In effect, after the agreement of Bretton Woods was abolished the dollar stopped being interchangeable to a stable value with regard to the gold standard. The gold standard would have disappeared and would begin to govern the modern market, where the value of the currencies decides comparing some with others. Since it is of be waiting, the consequence of the disappearance of the agreement of Bretton Woods was the liberation of the limits that this one had put at the cost of currencies exchange, beginning to govern the rules of the offer and the demand. This way, a few coins begun to be valued, others, to depreciate and, in general, the market began to present indexes of growth and descent indexes between the different coins, phenomenon to which they call him volatibilidad.


This phenomenon generated all kinds of opportunities of investment for the investors interested on the speculative market. In this period it was properly where it is possible to be said that there began the phenomenon of deregulation of the foreign exchange market, in which the foreign exchange market FOREX registers.


Nevertheless, before the freedom of market that we experience in these days on the FOREX market, there was a regulation later to the agreement of Bretton Woods that is important to mention: It is a question of the brought ones by Smith's agreement and the European agreement. This one was establishing a system of floating exchange rates between the different countries, which was fixing a few maximum limits of descent or of ascent between which the currency could move but it could not exceed. These agreements were abolished after one began to leave the Keynesian economy model, on having diminished the size of the states and having given more freedom to the economy.

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