Throughout almost the entire 19th century, Europe lived according to the “gold standard” – a monetary system, according to which each state held some standardized amount of gold in currency and made it possible to exchange the latter for a given amount of gold. But this system had a lot of disadvantages:
- the lack of rapid emission, which did not allow the development of trade;
- difficulties in transporting gold (a costly and laborious process);
- the loss of gold coins led to an imbalance in the entire monetary circulation, which could only be solved by a new similar amount of gold;
- depreciation of gold coins.
The solution to this problem was the appearance of paper money, which was a kind of certificate. Gold was stored in one place, while people could exchange their certificates (money) for gold or give them away for some goods or services.
The entire monetary system was changed on January 15, 1971, when the 37th President of the United States of America, Richard Milhous Nixon, abandoned the “gold standard”. Recall that since 1944, the so-called Bretton Woods currency system (from the name of the city of Bretton Woods) operated, according to which the US dollar was the reserve currency. The national currencies of the participating countries (Great Britain, France and the USA) were pegged to the dollar, and the dollar, in turn, to gold (1 ounce (approximately 28.3 g) of gold – 35 dollars). This agreement fixed rates and did not allow deviations of more than 1%.
In connection with the economic crisis of the 70s. crashed. The US gold reserves were declining, gold prices were rising steadily, as was the demand for it. Attempts to keep the dollar exchange rate fixed were unsuccessful.
In the early 1970s a completely new market structure begins to take shape – the structure of floating rates. Now exchange rates depend on supply and demand.
It is from this period that the Forex market (Forex) in its modern form begins its existence.
To replace the Bretton Woods agreement, a new one was signed – the Jamaican one. Now the currency has no gold content. A new unit of account of the International Monetary Fund (IMF) – SDR (special drawing rights) has been adopted. The value of SDRs was determined using the basket method. The basket included 16 currencies of countries whose export volume exceeded 1%. In the future, only 5 currencies remained in the basket – the dollar, the British pound sterling, the German mark, the French franc and the Japanese yen. The ECU, the monetary unit of the European Monetary System, was also additionally considered. It was an additional means of payment and was determined from 12 currencies of the leading countries in proportion to their share of GDP in the European Community.
In 1999, the ECU was converted into euros at a rate of 1:1.
The emergence of freely changing exchange rates made it possible to carry out operations with monetary units anywhere in the world, to any person. Thanks to this, the global Forex currency market has become the largest market in the world. Here they buy and sell currencies of different countries 24 hours a day.