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A Brief History Of The Exchange Rates
By: Ispas Marin
Where did these exchange rates come from? Have they always been used in relation
to foreign currencies? How did they evolve along the years?
If you wonder about these things, the first thing you should know is that the
exchange rates haven’t been used since the beginning of trade. Gold was the
thing used to back the currencies for a very long time. What did this mean? It
meant that a currency issued by a government represented a certain amount of
gold that existed in that government’s vaults. The fact that a person owned that
currency meant that person really owned a certain amount of gold.
But this balance was about to be changed as the US government set the value of
the dollar at a unique level: 35 dollars would buy you one ounce of gold. This
thing happened in the 1930s. After the end of the Second World War, countries
started to consider the US dollar a strong basis for their currencies. The
reason for doing this was the fact that the US dollar value was well known, so a
currency based on the dollar would actually be based on gold. For instance, if a
certain currency was worth three times more gold than the US dollar, then it
actually worth three US dollars.
But this system became outdated quite fast due to the amazing evolution of the
world economy. The US dollar started to be affected by inflation, meaning that
it could purchase less and less goods. This wouldn’t have been very bad if other
currencies hadn’t become stronger and more stable than the US dollar. In the
end, the US dollar had to accept its fate that it had stopped being the as
strong as it thought, so its value was decreased from 35 dollars for one ounce
of gold, to 70 dollars for one ounce of gold.
In the 70s the US dollar gave up on its gold standard. The US dollar value
started to be determined by its market strength. Although the US dollar stopped
being the standard for world currencies, it never stopped being the most
important currency on financial markets, as many exchange rates are still
expressed in US dollars. The Euro has also become a strong currency, even
stronger than the US dollar. These two currencies together represent about 50
percent of the exchange rates.
In conclusion, the exchange rates have evolved from being expressed in gold, to
being expressed in US dollars, and finally, they worth as much as they weight on
the market.
About the Author:
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