The World Bank International Monetary Fund (IMF), and Bretton Woods Exchange System

The World Bank and the International Monetary Fund are collectively known as the Bretton Woods Institutions. Under the Bretton Woods Exchange System, the base currency, being the US Dollar, was pegged to the value of gold at a rate of $35 per ounce. Other currencies were then pegged to the US Dollar and allowed to fluctuate 1% either way. However, this fixed exchange rate system allowed any country to devalue or revalue its currency to fulfill the local financial and economic needs, particularly to make their exports more competitive in the global market. The massive US balance of payments deficits of early 1960's began casting shadows of doubt in the strength of the US dollar.

During the same decade, the currency crisis in Europe, mainly in the United Kingdom, France and Germany brought about the end of the Bretton Woods accord.

The United States, under president Nixon, reacted in 1971 by devaluing the dollar and forcing realignment of currencies with the dollar. The Bretton Woods Accord was thereby replaced by the Smithsonian Agreement. It was similar to the Bretton Woods Accord in that it worked on a fixed rate but was not backed by gold and also allowed for a 2.5% fluctuation instead of the previous 1%.

In 1972, the European community tried to move away from its dependency on the dollar. The European Joint Float was established by West Germany, France, Italy, the Netherlands, Belgium and Luxemburg. The agreement was similar to the Bretton Woods Accord, but allowed a greater range of fluctuation in the currency values.

Both agreements made mistakes similar to the Bretton Woods Accord and collapsed. The collapse of the Smithsonian agreement and the European Joint Float in 1973 signified the official switch to the free-floating system. This occurred by default, as there were no new agreements to take their place. Governments were now free to peg their currencies, semi-peg or allow them to freely float. In 1978, the free-floating system was officially mandated.

This market is popularly known as the International Monetary Market or IMM. This IMM is not a single entity. It is a collection of all financial institutions that have any interest in foreign currencies all over the world. Banks, Brokerages, Fund Managers, Government Central Banks and sometimes individuals are just a few examples of these institutions.

In a final effort to gain independence from the dollar, Europe created the European Monetary System in July of 1978. Like all of the previous agreements, it failed in 1993.

Forex History Changes With The Introduction of The Internet.
During 1994, online currency trading made its debut, with the first online Forex transaction done. Since then, the market has grown to what it is today, with a total circle of more than $2.5 trillion every day. The big change in Forex history is that now anyone could participate and invest in the market. The vast amount of people trading online Forex is due mostly to the option of margin investments that are available with online Forex trading.

On January 1, 2002, the history of Forex trading was changed with the introduction of the Euro as the official currency between twelve European nations. The Euro is now the second most frequently traded currency in Forex markets. The countries first added to the Euro currency were: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London’s convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euromarket.

Today, the major currencies, such as the U.S. dollar, Euro, British pound, Swiss franc and the Japanese yen, move independently from other currencies. The currencies are traded by anyone who wishes, including an influx of speculation by banks, hedge funds, brokerage houses and individuals. Only on occasion do some of the central banks intervene to move or attempt to move currencies to their desired levels. The underlying factor that drives today's forex markets, however, is supply and demand. The free-floating system is ideal for today's forex markets. The supply and demand of currencies are driven by three factors, including interest rates and interest rate differentials, commodities and global trade.

The forex market is the prime market of the world by all which all others can be considered derivatives (like futures and options).

With this growing volume, 24 hour convenience, the ability to trade anywhere in the world, ease of access to data and information and the leveraged margin accounts from retail brokers, this market is an ideal trading arena.