Foreign exchange development history - exchange
market evolution foreign exchange development history - exchange market
evolution gold remittance system and Bretton woods agreement.
In
1967, a Chicago bank rejected to provide pound loan to a professor
named Milton Friedman, because his purposed was to use this fund to
sell short the British pound. Mr. Friedman realized excessively that
the price ratio from the British pound to US dollar at that time was
high, he wanted first to sell the British pound, after the British
pound fell he buys back the British pound to repay the bank again. This
family bank rejects the loan offer based on the "Bretton woods
Agreement" which was established 20 years ago. This agreement has fixed
the various countries' currency to US dollar exchange rate, and the
price ratio between the U.S dollar and the gold is also fixed to 35 US
dollars to each ounce of gold.
The
Bretton Woods Agreement was signed in 1944, the purposed was to prevent
the currency to escape between countries, and also to limit the
international speculation, thus to stabilize the international
currency. Before this agreement was signed, the gold remittance
standard system which was widely used since 1876 - was leading the
international economy system until the First World War. In the gold
remittance system, the currency was at the stable level under the
support of the gold price. The gold remittance system has abolished the
old time king and the ruler which depreciates the currency value
unlawfully, which will lead to inflation.
In
the 1980s, along with the published of the computer and correlation
technology, the international capital has flow rapidly, and strongly
related the Asia, Europe and America market. Foreign exchange business
volume from 80's rises daily from 70 billion US dollars to 150 billion
US dollars after 20 years.
European market inflation
One
of the reasons why the foreign exchange developed rapidly was the rapid
development of the Euro dollar market. In a Euro dollar market, US
dollar is stored beyond the border of America banks. Similarly, the
European market is refers to property depositing outside the currency
rightful owner country market. A Euro dollar market was formed at first
in the 50's, at that time Russia deposited its petroleum income beyond
the US border, avoid being freeze by the US government. This has formed
a large offshore US dollar national treasury which is beyond the
control of the US government. The American government has formulated a
law to prohibited US dollar from lending money for the foreigner.
Because the degree of freedom of the Euro dollar market is bigger and
the rate of return is bigger, therefore it has large attraction.
Starting from the 80's, the American company starts to borrow loan from
the offshore market, they discovered that the European market is a
wealth center which consists of large amount of floating capital which
could provide short-term loan.
London
once was (until now still is) one of the main offshore market. In the
80's, the Bank of England in order to maintain its global finance
industry center dominant position, using US dollar as England pound
substitution to make loan, thus to become a Euro dollar market center.
London's convenient geographical position (is situated between Asian
and Americas market) also helps to maintain the European market as the
dominant position.
