HISTORY OF FOREX MARKET MOVEMENT
Did you know that the trend of currency fluctuations in exchange rates were first formed a flat trend? This refers to the history of the application of the exchange rate set by the Bretton Woods agreement in 1944, attended by 92 countries at the initiative of the United Kingdom and the United States.
In essence, the Bretton Woods agreement introduces a system a fixed exchange rate and the establishment of financial institutions that govern the stability of the global economy, an IMF. If any provision of pokonya provides that any member of the Fund must comply with respect to:
- Hard or stronger currencies must be associated with a specific weight of gold. In other words, the publication of foreign exchange must be secured by gold reserves. For example is the US dollar, to create money at $ 35 Federal Reserve Bank (Central American Bank) must save a gold value of 1 ounce or 28.3496 grams.
Currency including hard currency ie US dollar, euro, pound sterling, Swiss franc and Japanese yen
-. flexible currency and a weaker currency should be involved in hard currency. In other words the low currency issue must be based on the value of state assets were assessed with hard currency
-. Fluctuations in exchange rates are expected only 1% -2.5% above or below the current exchange rate
watching the story as it was with the introduction of the fixed exchange rate system, since the adoption of the Bretton Woods agreement in 1944 that if the exchange rate were described in graphic form, it will form a trend that is relatively flat, because each currency essentially worth weighing some gold.
Then when he started the trend is up and the downward trend?
clear when the expiration of the fixed exchange rate system. Chronology begins with the weakening of confidence in the US dollar following:
1. Dollar Shortage / the dollar shortage
After the Second World War international trade began a passionate and growing faster than many are looking for the dollar to the transactions liquidation border because at that time the dollar is the currency of international trade. But it is the dollar amount when it is unable to support all the needs of the transaction. The result is a liquidity crisis caused by the shortage of dollars. He starts to provoke the thought that dollar is not worth more as the currency of international trade because it is able to support all the needs of the settlement of international transactions.
2. Dollar GULT / The excess dollars
seeing the state of the dollar shortage, the US print money amount in dollars of the total value exceeds the total value of gold reserves property. Yet according to the Bretton Woods agreement should the amount of money issued its value must match the gold reserves held. Of course, this undermines confidence in the United States.
In addition, as the world's policeman, America when it provides development assistance to countries of the European victims of the Second World War. Consequently, too many dollars coming out of America. It indirectly creates excess traffic dollars outside the United States. With inflation too offer him money, inflation can not be avoided .Efek course, this makes the US dollar becomes less valuable.
Of the two, it timbulah declining confidence in the US dollar as the international monetary standard. The real action of the decline in confidence is reflected in the case of redemption of dollars on a large scale by European countries.
Francis is the first country to do so in exchange for a total of 150 million dollars with gold. French action is then followed by Spain, which buys some 60 million US dollars with gold, followed by other countries. Virtually any amount of gold reserves at Fort Knox (USA) significantly reduced.
Can you imagine the Americans to that time published a large number of dollars, but the gold reserves guarantee significantly reduced or lower. Again, according to the Bretton Woods agreement, the number of US dollars in circulation in value must be equal to the gold reserves held by the Americans.
unilaterally terminates America canceled the Bretton Woods agreement by Nixon presidential decree on 15 August 1971, which among other things that the USD is guaranteed by gold . But the US dollar remains the international currency reserves to assess countries worldwide. Since that time, and being a new system called floating exchange rate.
Floating exchange rate or a floating exchange rate system was set by the mechanism of the forces of demand and supply foreign exchange market, which are not not guaranteed by precious metals.
So, this time forex market started moving up and down to form a trend line with market demand and supply . What happens next with the currency market is determined by supply and demand in the market.
So the point before 1971, the exchange rate tends flat graph. Or maybe any graphic graphic pair of flat currency, because each currency has a value of a specific weight of gold. Only after 1971, the rate of an even exchange any currency goes up and down depending on market demand and supply.
This material know forex for beginners 1 series on forex story or rather the history of the movements of the forex market. Please proceed to learning materials for forex beginners Series 2