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Forex market history, where it all began:
Forex trading, which is the act of exchanging fiat currencies, is thought to be centuries old – dating back to the Babylonian period. Today, the forex market is one of the biggest, most liquid, and accessible markets in the world, and has been shaped by several important global events, like Bretton Woods and the gold standard.
Forex traders need to understand the history of forex trading and the key historical events that have shaped the market. This is because similar events could likely occur again in different, but similar forms – impacting the trading landscape. History tends to repeat itself.
History of Forex trading:
The barter system is the oldest method of exchange and began in 6000 BC, introduced by Mesopotamian tribes. Under the barter system goods were exchanged for other goods. The system then evolved and goods like salt and spices became popular mediums of exchange. Ships would sail to barter for these goods in the first-ever form of foreign exchange. Eventually, as early as the 6th century BC, the first gold coins were produced, and they acted as a currency because they had critical characteristics like portability, durability, divisibility, uniformity, limited supply, and acceptability.
Gold coins became widely accepted as a medium of exchange, but they were impractical because they were heavy. In the 1800s countries adopted the gold standard. The gold standard guaranteed that the government would redeem any amount of paper money for its value in gold. This worked fine until World War I where European countries had to suspend the gold standard to print more money to pay for the war.
The gold standard backed the foreign exchange market during the early 1900s. Countries traded with each other because they could convert the currencies they received into gold. The gold standard, however, could not hold up during the world wars.
source:https://www.dailyfx.com/
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