Currency markets are integral to globalization. The Foreign Exchange (Forex or FX) Market is the largest and most active financial market in the world. To put this in perspective we look toward a report of the Bank for International Settlements (BIS) published in June 1999, prior to the advent of the Euro. According to this study the daily volume of foreign exchange transactions was estimated in 1998 to be approximately 1,981.6 billion US dollars.
Significantly, since the previous report, which dates back to 1995, the net turnover for foreign exchange transactions has gone up by some 51%. It is now estimated at daily volume of USD $2.7 trillion traded on the World Spot & Forward FOREX markets.
Foreign exchange has been a great example of the benefits of deregulation benefiting the trader and investor. We can trace trading in money way back to before biblical times of course, for the modern error the major events are pre and post the Bretton Woods Agreement. John Maynard Keynes was the protagonist for this agreement and the setting up of the International Monetary Fund. Following World War II Keynes argued in favour of a radical system for the management of currencies, involving a central bank for the world and a common unit of currency, the "Bancor". History shows an important period of Keynes’ career was during the 1930s. This was a period of unemployment and the depression.
Conventional economics could not cope with the extraordinary events which took place leaving traditional economic theory with no answer. Keynes first major work which indicates the direction his ideas were taking away from the conventional approach was A Treatise on Money published in 1930. His most important work giving the culmination of his ideas was The General Theory of Employment, Interest and Money published in 1935-36. Why was Keyne’s so influential? He understood currencies, their influence and effect. Indeed during those depression years is when Keynes made a fortunate investing and trading in currencies.
The next major event was the Bretton Woods Agreement being abandoned in 1971 and as such the US dollar was no longer subject to the Gold Standard. This led a flow on and currencies of most major industrialized nations became more freely floating. Since this period the evolution has been massive with the most recent huge event being the establishment of the Euro in 1999. Please go to the KnovaMarkets Trader’s Library for a greater understanding of the evolution and practices of the Foreign Exchange market.