FOREIGN EXCHANGE DEVELOPMENT HISTORY:In 1967, a Chicago bank refused a college professor named Milton Friedman, because his purposed was to use this fund to sell short the British pound. Friedman, who had perceived sterling to be priced too high against the dollar, wanted to sell the currency, then later buy it back to repay the bank after the currency declined, thus pocketing a quick profit. The bank’s refusal to grant the loan was due to the Bretton Woods Agreement, established twenty years earlier, which fixed national currencies against the dollar, and set the dollar at a rate of $35 per ounce of gold.
The Bretton Woods Agreement set up in 1944, aimed at installing international monetary stability by preventing money from fleeing across nations, and also to limit the international speculation, thus to stabilize the international currency. Before this agreement was signed, the gold remittance standard system which was widely used since 1876 - was leading the international economy system until the First World War. In the gold remittance system, the currency was at the stable level under the support of the gold price. The gold remittance system has abolished the old time king and the ruler which depreciates the currency value unlawfully, which will lead to inflation.
But, the gold exchange standard system is didn't lack faults. Along with a country economic potentiality enhancement, it can import heavily from overseas, until it ran down its gold reserves required to back its money. It resulted the supply of the currency reduces, the interest rate raises, the economic activity will start to decline until it reaches the recession limit. Finally, the commodity price falls to the valley, gradually attracts other countries to stream in, massively rushes to purchase this country commodity. This will pour gold into this country, this will increase this country currency supplies quantity, and it will reduce the interest rate, and will create the wealth. This is so called the "the prosperity - decline" pattern and is the circulation of the gold remittance standard system, until the trade circulation and the gold freedom was broken by the First World War.
After several wars, the Bretton Woods agreement was founded. The countries which signed the treaty agreed to maintain the domestic currency to US dollar exchange rate, as well as the necessity of the corresponding ratio of the gold, and only allow a small fluctuation. Countries were prohibited from devaluing their currencies to their trade advantage and were only allowed to do so for devaluations of less than 10%. Enters the 50's, the continuous growth of the international trade causes the fund large-scale shift which produces because of the postwar reconstruction, this causes Bretton Woods system which establishes the foreign exchange rate to lose stability.
This agreement was finally abandoned in 1971, US dollar no longer could convert to gold. By 1973, currencies of major industrialized nations floated more freely, as they were controlled mainly by the forces of supply and demand.. The business volume, the transaction speed as well as the price variability, have achieved a comprehensive growth in the 1970's, come along with the emerge of price ratio fluctuation, the brand-new financial tool, market deregulation and trade liberalization.
In the 1980s, along with the published of the computer and correlation technology, the international capital has flow rapidly, and strongly related the Asia, Europe and America market. Transactions in foreign exchange rocketed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later.
