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When money was invented, money trading began and is still valid today. We can measure the value of any product today at a price while clearing the goods and assets during these periods. The desire of a trader to do business with different countries has led to money trading. It was understood at first that the printed cash had to have a thought and as such gold standard begun to be practised. The difficulties in maintaining this system led the countries to sign the Bretton Woods agreement. According to the agreement, the only currency that can be converted into gold is American Dollar and 1 ounce of gold is 35 dollars. However, the practical difficulties involved the existence of a commodity behind the money. It was the symbol of the money-worthy country and the confidence that was brought to the central bank of this country. Today, we can always buy and sell any kind of money. Forex market, exchange rates have become a bigger share in the free exchange rate system.

Forex History

The history of the Forex market dates back to the days when it was a clearing economy. In the barter economy, goods had value as a change of goods. With the subsequent development of the money and the increase in national and international trade, a commodity value began to be expressed in monetary value. This has led to the necessity of setting an equivalent value for currencies of different countries in international trade. The increasing volume of international trade in the 20th century brought about the fixed price of each country’s currency at Gold prices. However, the problems in the system have led to the signing of the Bretton Woods agreement, where the money is secured both in Gold and in the US Dollar.

Bretton Woods agreement

Currencies that have agreed to tie the countries to the treaty and fix their national currency at Gold prices have begun to appreciate against the US dollar. The dollar kept its validity in the single national currency that could be converted into Gold. According to the agreement, 1 ounce Gold = $ 35 or $ 1 = 0.88867 grams of Gold.

The agreement allows any country to change the currency’s value against the Dollar only in the case of asymmetric monetary shocks. The devaluation and revaluation rates for these fluctuations are limited to 10 percent. The amount exceeding 10 percent is subject to special permits from the IMF.

Smithsonian Agreement

With this deal, the value of the US dollar has decreased by 8 percent compared to foreign currency. However, in a short period of time, the devaluation rate of the US Dollar was found to be inadequate. As a result of the speculative attacks on the dollar, the US dollar was again depreciated by 10 percent on February 12. While the aforementioned move was insufficient, foreign exchange markets were forced to close between 1-18 March 1973. With the reopening of the markets on March 19, Asian and European currencies were allowed to float freely against the Dollar. This is considered to be a temporary development at the beginning but is considered to be the beginning of a new period (flexible exchange rate).

All these arrangements allowed the exchange rates to move freely and are the building blocks of the flexible exchange rate system. Today, currencies can be purchased and sold independently from other country currencies. This case affects the effectiveness and depth of the Forex market positively. The main participants of the Forex market, where foreign currency can be bought and sold freely, can be listed as private/public banks, central banks, individuals and companies trying to protect themselves from foreign exchange risks and from individual investors trading for profit.