It is important to learn some of the historical events relating to currencies and currency exchange.
Currency trading has been around for milleniums since the time of greeks, egyptians and babylonians. In 2600 b.c., Egyptians discovered gold and made it valuable. In 1500 b.c., Countries started using molten gold and silver to exchange currency and their value was determined by their weight and size. In 700 b.c, the first gold coins were created.
In the 15th century, the first forex market was opened in Amsterdam, Netherlands. The paper currency began later on in the 18th century and started spreading across Europe. This created the possibility to freely trade and helped stabilize the currency exchange rates. In 1875, the Gold Standard was introduced.
The Gold Standard System is a monetary system that guarantees the value of a country’s currency or paper money based on a fixed quantity of gold. A country that uses this sets a fixed price for gold and buys and sells gold at the price. Currencies were backed by the golds of their countries.
The Gold Standard System plays a huge role in the currency exchange. Later on, the system broke down during World War I because countries had to print more money to finance their expenses. This started the foreign exchange market.
The Bretton Woods Agreement was established in July 1944 and the US dollar was the only currency in the world that was backed by gold. The dollar became the new global currency because in 1944, the Bretton Woods Agreement was signed, agreeing to replace gold as the main standard of convertibility with US dollar. However, the Bretton Woods Agreement collapsed in 1971 and the digital foreign exchange started.