foreign exchange

The gold standard monetary system was created in 1875; known to be one of the most important events in the history of the Forex market. When there was no gold standard, countries would use gold and silver in order to do international payments which were so much common before 1875. The major drawback of using gold and silver was that their value was affected by external influence of demand and supply.

The gold standard system was backed by the idea that governments guaranteed the conversion of currency into a specific amount of gold and vice versa. It was important for the governments to have a fairly large gold reserve.  In this way, governments could meet the demand for currency exchanges. All of the major economic countries in the world had defined an amount of currency to an ounce of gold in the late nineteenth century.

Breton wood system has the greatest contribution to the establishment of a Forex Market. It led to the formation of a method of fixed exchange rates. Also, the US dollar became the reserve currency to be used internationally. Such events which contributed to the abashment of the gold standard, gave rise to floating exchange rates and international trade became more and more prominent. The exchange of goods and services was fueled and this raised the economic activity on global scales.

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