A Brief History of the FX Market’s Evolution

Demetri Papacostas, Francesco Tonin

Humankind has a very long history of using different currencies to facilitate trade, going as far back as 10,000 years ago. Our existing system of currency creation and exchange, based on state authority and credibility, is very new. In this chapter, we will briefly explore the beginnings of this system following WWII, and its evolution into a fiat system of currencies. We will also highlight the transformative impact on this market of regulation, and the astonishing increase in computing horsepower.


In 1944, at Bretton Woods, the US was about to become the only real economic victor of both world wars. It used its dominance to bring to the table all relevant countries in its sphere of influence. The US created a global accord that stabilised the global financial system and secured its economic hegemony for the foreseeable future. At the heart of this system were a set of rules and ethos that discouraged speculation, and provided the maximum possible certainty of exchange rates and a mechanism for the massive global debts to become manageable. Global debt was a huge problem after WWII – for example, US government debt had risen from 20% of GDP in 1933 to 112%

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