The history of the development of Forex.
Foreign exchange is the abbreviation of international exchange. The concept of forex can be elaborated from both dynamic and static perspectives. Dynamic foreign exchange refers to the financial activity of exchanging one country's currency into another country's currency to pay off international debts. Static foreign exchange can be divided into broad foreign exchange and narrow foreign exchange. Foreign exchange in a broad sense is foreign exchange as defined by the foreign exchange management laws and regulations of various countries. According to China's regulations, foreign exchange refers to the following means of payment and assets expressed in foreign currencies that can be used for international settlement: including (1) foreign currency, (2) foreign currency payment vouchers, (3) foreign currency value**, (4) special drawing rights, and (5) other foreign exchange assets; Foreign exchange in the narrow sense refers to payment vouchers and credit vouchers expressed in foreign currencies for international settlements. It includes foreign currency deposits deposited in foreign banks, bills of exchange, cashier's checks, cheques, and foreign Treasury bills and long-term and short-term deposits.
The development of the foreign exchange market is a long and complex process.
1. The gold standard.
Gold Standard Period: In the late 19th and early 20th centuries, many countries adopted the gold standard, where currencies were pegged to **. Under this system, the development of the foreign exchange market is relatively limited, because the value of the currency is mainly determined by **.
After the First World War, the world economy grew at an accelerated pace, but the rate of production failed to meet the demand for money. In addition, during the outbreak of the war, many countries stopped converting **, making the gold standard useless. Despite subsequent efforts to restore the system, it was difficult for the exchange rate between the currency and ** at that time to return to the old value, and the exchange rate fluctuated greatly. In addition, in 1929, an economic and market crisis occurred in Western countries, which affected the United States and the world. Eventually, it led to worldwide economic chaos and unrest. In order to defuse the crisis, major economies have depreciated their currencies, raised import tariffs, and banned ** exchange to reduce capital outflows. At this time, the gold standard, which had been in use for about a hundred years, was severely undermined.
After the gold standard and the gold exchange standard were destroyed, in order to protect their own interests, countries adopted a series of protection policies and foreign exchange controls, and transformed the system linked to the gold into a paper money system. Can be redeemed for **. Eventually, in 1931, Britain was the first to abandon the system, followed by other countries, and the gold standard collapsed completely. Competition and conflict between countries not only affect economic development, but also undermine trust between countries. As a result, a number of countries adopted a new policy on the basis of this system of paper money - friendly countries and colonies close to them were organized into a currency area. This trend gradually developed into three major currency areas, namely the US dollar, the British pound and the franc.
The system is mainly based on these three currencies. For example: the US dollar zone. The currencies of the member countries in the zone are fixed to the United States dollar. The region's economic ** settlements are all settled in US dollars. All reserves, including foreign exchange and **, are concentrated in the United States. Foreign exchange activity during this period was mainly concentrated between the US dollar, the British pound and the franc, and this situation continued until around 1944.
Bretton Woods system.
The Bretton Woods system was the dollar-centric international monetary system after World War II.
The Bretton Woods system was established at the United Nations Joint International Monetary Conference in Bretton Woods, New Hampshire, United States, in July 1944. The core elements of the Bretton Woods system include the pegging of the U.S. dollar to **, the pegging of other countries' currencies to the U.S. dollar, and the introduction of a fixed exchange rate system. For a considerable period of time after the war, this system did usher in an era of unprecedented international development and the increasing interdependence of the global economy. However, due to the frequent outbreaks of the dollar crisis and the US economic crisis, as well as the inextricable contradiction of the system itself, the system was declared closed by Nixon on August 15, 1971. Nonetheless, the two institutions born from the Bretton Woods Conference — the World Bank and the International Monetary Organization — continue to play a crucial role in the world** and financial landscape.
3. Floating exchange rate system.
The floating exchange rate system means that the foreign exchange rate is determined by market supply and demand, and the fluctuation range of a country's currency exchange rate is not limited.
This new system differs from previous systems in that it abandons the fixed proportional relationship between national currencies and **. This exchange rate system relies primarily on national credit as a guarantee. For the best banks in various countries, they can also formulate their own monetary policies, and use the power to intervene in the market to maintain their own monetary policies, enhance the ability of countries to balance, improve the problems caused by rapid economic development, and further improve the structure of the world foreign exchange market.
During the Bretton Woods period, the barriers and frictions between countries were reduced, the world economy prospered, and the European and Asian economies recovered from the damage of the war. It was not until 1960 that America's status as an advanced industrial power began to be challenged by West Germany and Japan. Due to the increasing demand and amount of the world's **, and the speed of **production lagging far behind the rapid expansion of the international **, the US dollar, as the main currency, must maintain the stability of the system. Due to the inability of the currency to increase at will to meet the needs of the international market, the liquidity of the currency was insufficient, which eventually triggered the dollar crisis.
At that time, the world began to lose confidence in the dollar, and the entire exchange rate system was shaken and completely collapsed. The U.S. balance of payments deficit has been expanding rapidly for a long time, inflation is serious, the U.S. position as the world economic leader has begun to waver, and the official dollar against the U.S. dollar has begun to decline. Questioning, all of which make it difficult for the dollar to comply with the original exchange rate agreement. The first depreciation of the dollar occurred in August 1971, when Nixon announced the New Economic Policy (NEP) and adjusted the official mechanism of the dollar and the dollar. But the new policy has not been able to improve the US deficit or solve the chaos in the international market. Subsequently, in 1973, the dollar announced a second devaluation. The value of the US dollar continues**. Countries around the world began to come up with countermeasures by changing the original fixed exchange rate system to a free-floating exchange rate.
Overall, the development of the forex market is a process of constant evolution and improvement. From the gold standard to the Bretton Woods system to the floating exchange rate system, the foreign exchange market has gradually become an integral part of the global financial system. At the same time, with the advancement of technology and the internationalization of the market, the size and complexity of the foreign exchange market are also increasing.
The next article will bring you the key points of modern international foreign exchange electronic trading, so stay tuned.
This article is not my original, some of it is excerpted from the Internet, and it is compiled and summarized for reference only.