Forex Investing Business Academy

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THE ORIGIN OF FOREX (FOREIGN EXCHANGE MARKET): PART 4

Bretton Woods System (1944 – 1971)

This is the foundation of the modern forex market.

Key Event:

Bretton Woods Agreement
Structure:

USD pegged to gold ($35/ounce)
All other currencies pegged to USD

Institutions Created:
International Monetary Fund (IMF)
World Bank

Why USD became dominant:

United States held the largest gold reserves

Post-WWII economic power

Characteristics:

Semi-fixed exchange rates
Central bank intervention
Limited speculation.

THE ORIGIN OF FOREX (FOREIGN EXCHANGE MARKET): PART 3

Interwar Chaos & Currency Wars (1918 – 1944)

After WWI, the system fragmented.

Major Issues:
Countries attempted to return to gold but failed
Competitive devaluations

(“beggar-thy-neighbor” policies)

Hyperinflation (notably in Germany)

Result:
No unified forex system
Exchange rates became unstable and politically manipulated.

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THE ORIGIN OF FOREX (FOREIGN EXCHANGE MARKET): PART 2

The Gold Standard Era (1870s – 1914)
This is the first true structured forex system.

What happened?

Countries pegged their currencies to a fixed quantity of gold.

Example:
1 British Pound = X grams of gold

1 US Dollar = Y grams of gold
→ Exchange rate derived mathematically

Characteristics:

Fixed exchange rates
Minimal volatility
Strong trust in currency value

Why it worked:

Gold limited money supply →
controlled inflation
International trade became predictable

Why it collapsed:

World War I forced countries to print money → broke gold backing