What Exactly is Forex? (Part One)

What Exactly is Forex (Part One)

What Exactly is Forex (Part One)

A brief review of the birth of money and today’s digital exchanges

To understand what forex is, we have to go back to the origins of money itself and how it became one of the driving forces of humanity. We go back to 12, 000 BC when the earliest confirmed object was used instead of barter.

The object in question was obsidian and it became the first currency beside the more widespread use of cattle and grain for bartering, something logical, given that they were readily available among different nations and tribes.

From then on with the diversification of labour and specialisation of people, the next phases of using currencies came along. Silver bars were used in Mesopotamia around 6,000 BC and the first use of gold was recorded in 5,000 BC in Egypt. Both of them, along with other metals, were chosen for their durability and lack of chemical interaction with the natural world. With this the uncertainty of bartering with something that can rot or die was eliminated and these reasons are still present to this day, keeping the precious metals among some of the most traded instruments.

The evolution to issuing identical coins and later paper notes, was the emanation of the country that used them. If the people of that country produced something of high value, both for themselves and for other peoples, then the coins and notes were more valuable.

The tricky part with having a currency is that it always has a perceived value, always in motion, susceptible to both spectrums of confidence and fear, not least international conflict. In order to make things more predictable and calculated, banks formed and their forerunners formed the first regulated exchanges. The Medici family had offices abroad in the 15th century with Holland and England following on the winds of their overseas expansions.

Until WWII the forex market continued its steady development with more companies specialising exclusively in the exchange of national currencies. During these years, the main volume came in British pounds and London was building the foundation of its current status, although the largest volume could occasionally be found in different places, correlating with periods of economic prosperity there – Paris, Berlin and New York.

In part two, out tomorrow at 4:00pm GMT, we will be going over the changes after WWII, the beginning of fast-paced globalisation and the advent of the world wide web and massive computing power. The factors that shaped the modern day foreign exchange markets.

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