THE HISTORY OF CURRENCY TRADING

The History of Currency Trading
Each day around the world, massive sums of currency are exchanged, seemingly with nothing more than a click of a computer mouse or a brief satellite-connected telephone conversation between traders on different continents. Technology has helped to evolve the foreign exchange industry a long way from its rather humble beginnings. Developing an appreciation for how this system developed over time – as well as an understanding of the modern analytical tools at a trader’s disposal – can greatly aid in investment decision-making.
The foundations of modern foreign exchange
The beginnings of modern currency trading can be traced back to the origins of money itself. A key tenet of foreign exchange theory involves a shared belief that various forms of money have value, and can be readily exchanged for products, services and other commodities. Currency has a long history of being backed by the value of various precious metals, including silver and gold. During the nineteenth century, most of the currencies in worldwide circulation were backed by stores of gold bullion, a concept first initiated by the government of England. But global turmoil in the twentieth century gradually led to a rescinding of the gold standard. Recognition of the United States of America as a global economic superpower meant that the U.S. dollar was almost universally accepted around the world as a medium for barter and trade. Today, the U.S. dollar continues its dominance by playing a role in an astounding 70% of all foreign exchange transactions.
Money makes the world go round
The origins of coin-based currency date back as far as 2000 BC. The age of modern metal-based coins is believed to have begun in Asia Minor sometime during the seventh century B.C. The first coins were struck from naturally occurring metals such as electrum and silver. Later, other minerals and alloys such as bronze, copper, lead and gold were utilized. Due to the fact that these metals were prized for their rarity, the coins minted from them had intrinsic value. Bearers of these coins could literally carry their wealth with them at all times. In fact, many coins from the Roman era had center-punch holes so that they could be strung on a cord for easier transport.
Paper currency is generally believed to have been introduced in China around 806 AD. Unlike coins of the era, paper currency was created as a system of stored value, backed by a known commodity and the credibility of the issuer. In addition to creating an orderly means of trading, the use of paper currency eliminated the need for individuals to haul large quantities of coin – or worse, heavy ingots or bullion – in order to engage in trade. As might be expected, the introduction of paper currency also gave rise to the first incidences of counterfeiting, and the struggle to create highly-unique, non-reproducible bank notes – a challenge that continues to this very day – was first born