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Curious about the history of foreign investing? Here’s a brief history, from the 19th century to today.
The Gold Standard
Before the 19th century, there wasn’t much demand for foreign trade; travel was so arduous and communication so unreliable that there was not much demand for foreign financial relations. By the 1800′s, however, technology and trade had evolved enough to need a standard way of trading between nations with different forms of currency. By the middle of the 19th century, countries had started adopting the gold standard.
“The Gold Standard” means that the world traded based on what gold was worth at the time. A bar of gold would cost the same in every country, no matter where individual currency rates stood.
Post World War II
The gold standard fell by the wayside during the Great Depression, when countries had precious little capital to invest. WWII brought the Bretton-Woods system. This system took all the world’s common currencies and gave them an exchange value for gold. This was an important moment for the United States: most countries simply used the U.S. dollar as a standard for what their currency was worth. Unfortunately, this led to stagflation due to the strength of the U.S. dollar.
1976 and Beyond
The International Monetary Fund threw out the gold standard completely in 1976 when it created a system of fluctuating exchange rates. This is the exchange rate system we are familiar with today. As a result of this system, Forex trading – which relies heavily on the 24-hour constantly changing currency system– was born.
