Forex historical data
Foreign exchange today may seem too complex for the average person to grasp. The images of the market that dominate the media walls of blinking computer screens, screaming traders, giant blocks of money traded at the speed of light, defined by an intricate interplay of events reinforce this perception. But these images are actually part of a fa\'ade, masking a relatively simple transaction.
At its heart, each foreign exchange is a trade an exchange of one monetary unit for another. Dealers and investors may employ intricate strategies or use technical trading language and develop rich models, but that does not fundamentally alter the act.
Understanding this helps out through the clutter, misperceptions and mystery that surround this market. Very little of what is done in foreign exchange today is vastly different from how individuals have traded for thousands of years. The techniques and tools have changed, but the simple exchange remains the same.
Because foreign exchange is in fact so old, it is important to trace its roofs, to explore how this market has evolved over the millennia. Individuals , kings and emperors, traders and dealers, common citizens and thieves have employed all kinds of methods to use money and markets to their advantage. Their strategies have resulted in success and disaster.
LESSONS OF HISTORY
One of the most famous and vivid channels of foreign exchange occurred along the fabled "Silk Road" over which goods flowed back and forth between Asia, the Middle East and Europe. The road started in Xian, a city in central China and went by various trails west. Centuries ago, traders prodded columns of camels loaded with rugs, silks and bags of aromatic spices that Europeans needed to season their dishes and delight their palates. Through the city\'s alleys and in its open market spaces, goods were inspected, values suggested and deals struck. Money and objects changed hands.
This kind of trade is the barter system, which is still the norm in many parts of the world. However, the barter system had flaws. For one, making individual trades was cumbersome and time-consuming. Each item had to be inspected and its worth determined before haggling could even begin.
Two, it was inefficient. Goods did not always match up in value, so bartering required an exclusive number of items to make the trade even. A bag of grain may not be exactly worth a lamb, so the trader would have to add a bottle of wine to even things out. This made things much more complex.
Three, the barter system could leave our vast parts of society. The farmer trades his grain with the butcher, is left out.
There is a solution to the problems of the barter system and many cultures developed it ? currency.
THE ROOTS OF MODERN CURRENCY
Forget the idea that currency is a piece of coloured paper with a picture of someone famous on it. Paper money as it now exists is a relatively new concept and it probably will not survive our lifetimes. In cultural and historical terms, currency is something that any group mutually recognizes as valuable.
The ancient Romans valued salt, an essential spice to liven up dishes and replenish the body during hot Mediterranean summers. Like the Aztec cacao beans, salt was also practical. It could be cut into small, uniform units and was accepted everywhere. Roman soldiers, who sweated during maneuvers under their leather and armor, were paid in salt. The Latin word for salt, sal, is the root of salary.
In North America, they still refer to one dollar as a buck few understanding that buck once referred to deerskin, which was commonly used as an item of exchange in colonial times.
Everywhere, currency was determined by local conditions. East Asians often used rice, Mongolians used bricks of tea and Native Americans in the Northeast used coloured shells.
The introduction of currency marked an important advance in a society\'s economic life. Instead of simply trading items, people could determine value through something universal. Currency allowed exchanges to be more circular, rather than a chain of one-on-one transactions. The shoemaker could now sell his wares to the butcher for currency and then use that currency to buy the grain he needed.
Value, of course, is a relative term and cultures often found that what they treasured did not inspire the same reverence in their neighbours. One tribe in Alaska used dog teeth as currency, something other tribe regarded as disgusting. The aristocrats of Yap, an island in the South Pacific, used giant sandstone slabs so large that they needed dozens of labourers to move them. For obvious reasons, this currency never gained wide use.
As ancient cultures grew more sophisticated and trade grew to unprecedented levels, they found themselves back in the same barter system as before, with all its faults. The problem was to find something that was recognized as valuable, even among different cultures with different languages and beliefs.
TRENDS THAT ROCKED THE FOREX WORLD
The Rise and Fall of the Modern Gold Standard
The horror and destruction of two world ward filled the minds of the men who gathered in 1944 in Bretton Woods. They were determined to set the world right again and lay the foundation for a new international economic order. The core of this system was the strict pegging of all western currencies , British pounds, French Francs, German marks, to the U.S. dollar. The U.S. dollar in turn was based on a set amount of gold hence, the modern gold standard.
The Bretton Woods system, however, was fated to ultimately collapse. The reason became starkly clear over time. Banks needed the U.S. dollar, which was pegged to gold, to establish security in their reserve banks. The central banks of Europe could not circulate more money in their own economies if that meant overrunning the number of dollars they held. This system depended, then, on the U.S. running dollar deficits with the rest of the world and the number of dollars in circulation soon exceeded the amount of gold backing them up.
With more and more dollars in circulation, it became clear that the U.S.\'s pledge to back up its paper money in gold was more and more hollow. By the early 1960s, an ounce of gold could be exchanged for $40 in London, even though the price in the U.S. was $35. This difference showed that investors knew the dollar was overvalued and that time was running out.
Investors were not the only ones to recognize the fundamental imbalance of the Bretton Woods system. American economist Robert Trifflin had first identified the problem in 1960 for which he has since been honoured by having it named "Trifflin\'s Dilemma\'.
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