History & Development of the Foreign Exchange Market

By Md Golam Rabbani

The foreign exchange (FX) market did not happen in one day. It grew slowly over many years as people built systems to trade money, keep it stable, and decide its value. Today, the FX market moves more than $7 trillion every day, making it the largest financial market in the world.

🌍 Early Currency Systems

The Gold Standard

In the past, many countries followed the gold standard. This means their money was linked to gold. For example, you could exchange a set amount of money for a fixed amount of gold.

• This system made money stable and trusted.

• But it was also inflexible, because governments could not print or control money freely.

The Bretton Woods System

After World War II, countries agreed on a new system called Bretton Woods (1944).

• Most currencies were tied to the U.S. dollar, and the U.S. dollar was tied to gold.

• This brought stability to the world economy.

• But by the early 1970s, the U.S. could not maintain this system because of inflation and trade problems.

📈 Modern FX Markets

In 1971, U.S. President Richard Nixon ended the dollar’s link to gold. This collapse of Bretton Woods allowed currencies to move freely against each other.

• From then on, exchange rates were set by supply and demand in the market.

• In the 1980s–1990s, new technology and computers made trading much faster.

• Later, online platforms like MetaTrader allowed everyday people (retail traders) to join the FX market.

⚡ Important Events

• 1971 – U.S. ended the gold link, and currencies started floating.

• 1973 Oil Crisis – Showed how global events affect currencies.

• 1985 Plaza Accord – Big countries worked together to reduce the value of the U.S. dollar.

• 1990s Internet Growth – Electronic platforms made FX trading easier and faster.

• 2008 Global Crisis – Safe-haven currencies like USD, JPY, and CHF became very strong.

• Today – Technology, algorithms, and even cryptocurrencies are part of the FX world.

📝 Conclusion

The FX market has moved from gold, to dollar pegs, to free-floating currencies. With the help of technology, it is now the largest and most liquid market in the world, where anyone can take part.