Forex Timeline

A timeline of the history of fiat currency trading and the global events that are widely perceived to have caused or impacted the history of Forex markets.

Timeline

Dawn of time to 700 BCE

The Beginning of Currency

From the first time two humans possessed something that the other desired, the need for a common form of currency has existed. The earliest known use of rare materials as a form of money happened about 14,000 years ago. Eventually, around 700 BCE, the use of gold as a common currency began. And for thousands of years since, gold and other precious metals such as copper and silver have often served the same purpose.

After all, unless aliens originating from a planet with as much of an abundance of gold as we have of, say, carbon... this widely desired precious metal would always be a decent contender as a mutually desirable instrument for exchange.

Eventually, of course, governments found ways to issue fractions of their gold reserves to their citizens without physically dividing it up: by printing pieces of paper that function as IOUs for the physical metals they've got stashed away. And from that, fiat currencies were born.

Early 1900s

The Gold Standard

After countless generations of governments cycling through various group-hoarding behavior patterns in human nature, the British Empire returned to the gold standard in 1925. Many other countries then followed suit and ultimately drove the entire planet into rampant deflation... and, eventually, the Great Depression of 1929 to '39.

1945 - End of WWII

Bretton Woods

After the second World War, 44 Allied nations gathered at Bretton Woods, New Hampshire to sign what become known as the Bretton Woods Agreement.

Initially, Roosevelt wanted the big four allies (US, UK, Russia, and China) to attend but a combination of mistrust and an odd soap opera calibre misunderstanding divided the allies into the capitalists (led by the US and UK) and the communists (led by Russia and China.)

For the capitalist camp, one of the main features of the Bretton Woods Agreement was that all other exchange rates would be tied to the US Dollar. All other participating countries agreed to keep their currencies within about 1% above or below the value of the US Dollar. To instill some added confidence in the greenback, the United States fixed the Gold price at USD $35 per ounce.

This agreement, of course, highlighted the shift from an era dominated by the British Empire to the late 20th century's era of American-centric world. The war-devastated UK didn't have much of a choice by then.

The agreement was widely seen, at the time, as a way to prevent the symptoms of the Great Depression from returning.

1940s-50s Post WWII Decades

A New Europe and Japan

A couple years after Bretton Woods was signed, it became obvious that the original plan wasn't working quite as planned.

The natural flow of money in the post-WWII rebuilding period was going one way: war-torn countries had to pay US Dollars to the United States... but what was needed to repair the war damage was the reverse.

For the next eleven years or so, the United States government began issuing grants rather than loans to help Europe and Japan rebuild.

In exchange, the US gained itself new markets (in the form of former enemies as well as old allies... except, of course, for the former allies on the communist end of the spectrum) for imports and exports.

Late 1960s

Collapse of the Gold Pegged USD

By the late 1960s, the United States wasn't quite as powerful as it was two decades earlier. In a time when relations with communist former allies were, to say the least, less than optimal, Europe had mostly rebuilt. Meanwhile, Japan had transformed from a country known for providing cheap, low quality products to a booming exporter of quality brands that recent generations recognize around the world.

With other economic powers growing from among the capitalist in-crowd, there was a growing dissatisfaction with the US Dollar as an international currency. While Europe and Japan were content with the US as their provider of security and defense in the decades of red paranoia, this need became less of a priority as time passed.

After the Vietnam War, outflows of US Dollars from the American government reversed the post-WWII situation: with far more US Dollars flowing outward than inward, the USD was in massive supply (no longer in as high of demand) so its Bretton Woods fixed rate to gold became extremely overvalued compared to Germany's Deutschmark and the Japanese Yen, for instance. And neither of those counties wanted to revalue their own currencies because doing so would've driven up the cost of their exports.

1971

The Nixon Shock

In 1971, Nixon announced the end of the US Dollar's gold convertibility under the Bretton Woods agreement. By the end of the year, a larger range was allowed for other currencies to move - widening from the plus/minus 1% range from Bretton Woods to a new 2.25% range in either direction. And the US Dollar itself dropped as low as $44.20 per ounce of gold before the year ended.

1973

Free-Floating Currencies

The 1971 revision of the gold peg continued to fight the forces of nature in free markets to no avail. Currencies were often pushed outside of the new 2.25% range, and the US Dollar continued to devalue to more than $70 per ounce of gold.

In March 1973, all international currencies became free-floating.

1999

Birth of the Euro

A few years after the world was reshaped by the fall of the Berlin Wall, and Germany had adopted the Deutschmark (DEM) as its national currency, many members of the European Union adopted the euro as their shared currency with the Maastricht Treaty in 1992.

On January 1st, 1999, the individual currencies of participating countries ceased to exist and electronic transactions began for the EUR.

For many currency traders at the time, it was essentially the adoption of the Deutschmark, one of the most frequently traded currencies in the world... and, for decades to come, it was also arguably the DEM's downfall, having combined Germany's strong balance sheet with those of far more indebted governments. Nevertheless, the Euro-US Dollar (EUR/USD) pair remained one of the most liquid markets in the world.

1999 also marked the end of the gold backing of the Swiss Franc (CHF). Switzerland's currency had been backed by 40% gold until then when it was believed that the new anchor currencies (the euro and US Dollar) would do better than the outdated gold ties.

Early 2000s

The Retail Forex Wild West

The traditionally institutional-centric Forex market opened up to the masses with the growth of electronic internet-based trading.

Thanks to the decentralized nature of currency trading, the first generation of retail Forex brokers resembled online casinos more than stock or futures brokerage firms. Like the stock market's "bucket shops" of the earlier 20th century, many of these early entrants to the online Forex industry notoriously "bucketed" their customers' orders (ie. a customer's loss is the broker's win, and vice versa, because the trades are never passed along to any other party.) Coupled with rampant deposit bonuses, eager retail traders looking for unrealistic returns, and extreme leverage (upwards of 1:400) offered in a lightly regulated environment, traders often experienced manipulation from their brokers ranging from price feed changes for each customer to delayed trade executions.

As retail traders began to educate themselves, the offerings gradually improved as some brokers began to operate in an ECN (based on the stock market's Electronic Communications Network term for neutral order matching systems) or STP (straight-through processing) business model by arranging connections with larger banking institutions to take the other side of their trade - effectively acting as agent in at least some percentage of their customers' trades, if not all.

Eventually, the futures regulators in the US (NFA and CFTC) stepped up to the role of regulating US-based Forex brokers. Financial regulators around the world took similar steps, including the FSA (now FCA) in the UK, IIROC in Canada, and JFSA in Japan among those whose registration improved the public image of many retail firms. By 2008, following the mortgage crisis, most of the developed nations' regulators implemented limits to the leverage offered by retail Forex brokers to 1:50 or less.

2011

CFTC Lawsuits and the Euro/Swiss Franc Peg

In January 2011, the United States' futures regulator, CFTC, set a new precedent by filing lawsuits against retail Forex brokers, many of which were operated and incorporated offshore, for soliciting and accepting American citizens and residents for spot currency trading accounts.

Together with increased capitalization requirements for registration in the US, the American retail Forex industry gradually shrunk - leaving the world's largest economy with only a few currency brokers to choose from.

In Sept 2011, Switzerland announced that the CHF would be pegged to the Euro with a floor of 1.2000 EUR/CHF.

2015

The Swiss Franc Black Swan

In January 2015, Switzerland surprised the global markets with a sudden announcement that it would stop supporting the floor of 1.2000 EUR/CHF. Retail traders and a few hedge funds around the world with positions on the pair, assuming the Swiss central bank would continue to hold it up, caused massive losses as the EUR/CHF dropped (ie. CHF gained value) to the tune of thousands of pips within a minute.

It was the largest single-day move in any currency since the beginning of free-floating FX. The event wiped out at least one hedge fund and put the insolvency of a couple of mainstay retail Forex brokers in question.

The future

The financial media, and society at large, loves to assign cause and effect to major events. In many ways, a large portion of the timeline on this site is necessarily doing the same.

One of the first lessons traders learn is that the official story is rarely as cut and dry as it appears and often times, the most significant aspect of an event is only the impact it has on you and the people around you.

The financial system is as stable and as broken as it always was. If you had a time machine and paid a visit to the Great Depression, the booming 80s, or the first emergence of a stock exchange in Amsterdam in the 1600s, you'll likely have seen much of the same: A public that widely believed one thing... and a few who looked at things from a different angle who actually traded profitably, in bull or bear markets. Either way, there'll always be people proclaiming, "This time, it's different."

The markets are a product of human nature, so in some ways they're right. It's always different. And yet often the same.