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The foreign exchange, FX or forex market first arose in ancient Mesopotamian times. Royal palaces and temples were used to store harvested commodities which in turn created the need for revenue. This revenue was used for transfers to those who made the deposits and to third parties. The very same banking and receipt business were used in ancient Egypt. Revenue were often used to reconcile debts with priests, tax collectors and exchanged with traders. During the Medieval period, paper bills replaced coins as the currency of choice which made foreign exchange much easier. At this point things remained comparatively stable in the World of foreign exchange until the First World War.

At the end of WWI there was a short period of massive currency speculation. This World recession effectively killed any growth in FX assumptions as disposable income was at a premium. Until the start of WWII, the British Pound Sterling was the World’s most famous currency. At this time neither the United States nor its Dollar Currency had suffered this diminishing campaign or the strain of War on domestic infrastructure. The result was the Bretton Woods Accord.

All other currencies are pegged to the dollar at a certain rate. It was outmoded by the Smithsonian Agreement. The Smithsonian Agreement tried to accomplish where Bretton Woods had failed. Not long into this agreement, Europe made its first attempt at breaking free from the Dollar dominated system. In 1972 Europe formed the European Joint Float. Member nations included West Germany, France, Italy, the Netherlands, Belgium and Luxembourg. This agreement was very similar to Bretton Woods but with a larger band for rate fluctuation. For the first time since WWII there was a ‘free float’ system in place. The value of each currency is now governed completely by the laws of supply and demand. Large banks, private companies and individual speculators are all active participants in the Forex market. The Internet boom and the increasing ease of access to foreign exchange has further increased participation, especially that of individual speculators.

The European Economic Community (EEC) established the European Monetary System in 1978. A rate variation band of 2% was initiated. Bretton Woods and Smithsonian agreements, central banks were mandatory to uphold this band. The fiscal attack was so strong that the BOE deemed currency regulation too costly and withdrew from the European Monetary system. The official currency of the European Union (EU), the Euro, was launched in 1999 with coins and banknotes issued in 2002. Current member nations are: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The Euro is administered by the European Central Bank (ECB) which has the authority to set monetary policy over all of its member states. The Euro is now one of the most heavily traded currencies in the World.

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