The world was a different place after the Second World War and the Allied Powers needed to reorganize the world economy, establishing currency standards for the world's nations was a priority and was the basis for the forex market as we know it today.

The Bretton Woods Agreements

After the war ended, a conference was held in Bretton Woods, New Hampshire in July of 1944. At the conference, 45 nations met in order to establish a stable international financial framework and to prevent the reoccurrence of a global depression which had occurred during the 1930s.

One of the agreements made at Bretton Woods was an accord to reinstate the Gold Standard. The agreement fixed the price of gold at $35 U.S. Dollars per ounce and fixed other currencies to the price of the U.S. Dollar. This would effectively make the U.S. Dollar, the reserve currency for the world. A position it continues to hold to this day, albeit tenuously.

Nixon Takes the U.S. Dollar of the Gold Standard

As the United States accumulated massive budget and trade deficits during the 1950s and 1960s, the U.S. Dollar began losing its status as the world's only reserve currency. Also, Richard Nixon, then the U.S. President, decided to end the Dollar's convertibility into gold in August of 1971, essentially taking the U.S. Dollar off of the Gold Standard.

An agreement known as the Smithsonian Agreement, was signed by the members of the G10 Nations in December of 1971 which provided international currencies with temporary stability. In addition, another agreement was signed among European Nations in Basle, Switzerland in 1972 which established a "snake in the tunnel" system for minimizing exchange rate movements.

As currency pressures came to a head, most major nations decided to allow their currencies to float freely by March of 1973. This was the beginning of the modern-day fluctuating exchange rate system.

European Currency Union and the Modern Era

Nevertheless, controlled exchange-rate systems continued to be attempted periodically even after 1973. The European Exchange Rate Mechanism of the 1990's was one such attempt. This mechanism, combined with the increasing political integration of Europe, eventually led to the consolidation of the major European currencies that created the Euro.

The consolidation process began with the signing of the Maastricht Treaty in 1991 by the European nations which created the European Union. The European nations then attempted to fix exchange rates among the 12 member nations which in turn led to the creation of the Euro from the 12 currencies of the European Union.

The European Monetary Union had a major setback in late 1992 when the Pound Sterling was forced to leave the system and devalue. Nevertheless, the national currencies of the other twelve European nations were replaced by the Euro in 2002.

The modern era of forex trading has been ushered in by the recent availability of online forex brokers taking accounts in amounts of under $100. Now the forex market is truly available to just about anyone to participate in.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.