Currencies are valued in terms of other currencies, not in terms of gold – this is under the floating exchange system.

The two world wars brought about social upheavals, in the early 20th century also rapid inflation and the reason, which made the gold a standard operable – the destruction of the setting. During the two wars, a lot of countries selected to opt for floating exchange systems until their economies returned to the point at which in light of the fact that, if a currency drifted too far outside its band and could not be contained by central bank intervention, the country was allowed to adjust its peg by setting a new exchange price and also to temporarily abandon the gold standard.

Three aspects of the system were there, and they are: increasing international capital mobility, constant exchange rates and autonomous domestic economic policies. Thanks to the existence of Bretton Woods, this did not stop states from using domestic economic policy such as manipulating interest rates under the gold standard, for example. As well as or domestic reasons – their long-term effects on the exchange rate.

The central banks finally began to convert their dollars to gold and this is because the instability brought about by the Vietnam War. In 1974 the Bretton Woods System of adjustable pegs was officially abandoned and the Jamaica Agreement basically allowed the presence of any exchange system a country chooses (Aliber, 52). o halt the loss of gold, in 1971 Nixon “closed the gold window” by refusing to provide gold to foreign dollar holders (Eichengreen, 133).

The foreign exchange industry is one of the newest niche of the financial markets, where the traders first began exchanging currency from different countries and groups.

In 1944 a multinational conference held at Bretton Woods, New Hampshire to established the postwar forexign exchange system, which remained intact until the early 1970’s. The forex market as undergone a dramatic transformations. At this multinational conference, where was taken part from 45 nations to discuss the future of the exchange system. One of the results from this conference was the formation of the International Monetary Fund(IMF). Another agreement was that the fixed currencies in an exchange rate system would tolerate 1% currency fluctuations between U.S. Dollar and gold values, which was known previously as the “gold standard”. This system was called pegging.

After that in 1967 Milton Friedman was refused a college professor by a Chicago bank a loan in pound because he wanted to use the funds to short the British currency. The bank refused to grant the loan to the Bretton Woods Agreement, which fixed the dollar and national currencies, this set the dollar at a rate of $35 per ounce of gold.

After World War Two, the Bretton Woods Accord was introduced to the FOREX market to stabilize the devastated world economy. The history of the Forex begins before 1971 and still exist in our days,The Bretton Woods Accord to reflect a radical change in Universal fixed exchange rates.

The next agreement called Smithsonian agreement came in the end of 1971. This agreement was similar to the previous one, the difference was to allow greater fluctuation band for currencies. The big European countries tried to escape from their dependency on the dollar in 1972. This both agreements were mistakes, because they collapsed and in 1973 Europa signified the official switch to the free-floating system.

Europe tried, in a final effort to gain independence from the dollar, by creating the European Monetary System in July of 1978. This, like all of the earlier agreements, failed in 1993.