The History of the World’s Exchange Rates

 

The different valuation of the world’s currencies has created the need for trading and hedging against market risk. The Foreign Exchange Market operates as a global platform for exchanging different currencies. Here is the short history of the world’s exchange rates.

 

Currencies that Dominated the World

 

The 5^th century B.C. silver drachma of Athens was probably the first currency that became accepted outside its issuing state. Since then, Gold was the only real global currency. The Greek Drachma was followed by the Roman Gold Aureus and Silver Denarius that last until the early 4th century A.D.. Afterward, the Byzantine Gold Solidus became the dominant currency, followed by the Islamic Dinar. During the 13th century, Florence Fiorino became dominant in the Mediterranean area, followed by the Venice Ducato in the 15th century. During the 17th century, the world’s dominant currency became the Dutch Guilder. Afterward, and until World War 2, the British Pound Sterling became the most accepted currency in the world. Since WW2, the dominance of the US Dollar is undisputable.

 

Modern History of Exchange Rates

 

The Bretton Woods Agreement of 1944

The Bretton Woods agreement was signed in July 1944 and established for the first time a globally-accepted monetary order. The Bretton Woods system was agreed between the United States, Western European countries, Japan, Canada, and Australia. The agreement included a series of monetary obligations for all 44 parties.

Major Features of the Bretton Woods Agreement

-The United States managed to link the new monetary system on gold and the US dollar (by that time the U.S. controlled two-thirds of the world's gold)

-The Soviet Union attended the conference but later declined the final agreement

-All participants agreed to link their currencies to gold

-All participants agreed to avoid an intentional devaluation of their currencies

-Two major organizations were established (i) The International Monetary Fund (IMF), and (ii) the International Bank for Reconstruction and Development (IBRD)

-The IMF could adjust any temporary imbalances of payments

 

The Termination of the Bretton Woods Agreement in 1971 

In August 1971, the US terminated the agreement by ending the convertibility of the US dollar to gold. Other countries abandoned the agreement as well, moving from a fixed-currency system to a free-floating system. After the end of the Bretton Woods agreement, the values of major world currencies started to vary, and that created the need for Foreign Exchange services and brokerage.

 

The Birth of the European Currency (Euro)

On the 1st of January 1999, the Euro became the common currency of E.U. Member States. All different national currencies were replaced by a single currency, that was basically linked to the German Mark. The Member States transferred their monetary policy powers to the ESCB (European System of Central Banks), while the Council of Ministers became responsible for the euro area’s exchange-rate policy.

 

 

 

The Roots Behind the Names of Key World’s Currency

 

• Dollars

According to OxfordWords, the Dollar derives from the German word "Joachimsthal". A lot of silver was mined in Joachim's valley. The silver coins produced by this mine were called as “Joachimsthaler” coins. Later, the word was shortened to "thaler" and eventually became "dollar."

• Euros

The European Euro was named after Europa that was a Cretan Queen in Greek mythology. The etymology of the name means wide {eurys}.

• Chinese Yuan

The Chinese Yuan means "round coin".

• British Pound Sterling

The Pound was named after the Latin word "Poundus" which means weight.

• Gold

The name Gold has Gothic roots. The gothic word Gulþa evolved later in Geolu, which means "yellow". The word Gold became dominant in the 12th century.

 

■ The History of the World’s Exchange Rates

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