Gold Standard Foreign Exchange Market
The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. With the gold standard, the United States economy would print currency that equaled a specific value of gold. Meaning, you could cash in your money for a specified amount of gold because a unit of currency equals a specific amount of gold. As stated in chapter 5 of International business, 10th edition, “the gold exchange standard, established at Bretton Woods after World War II, worked until the 1970’s when it collapsed due to inflation and the surplus of U.S. dollars held outside the United States.”
They used gold because its rarity, durability, and the general ease of identification through its unique color, weight, ductility and acoustic properties. Gold is an internationally recognized commodity, which is why there are still holdings of gold. Gold has held its high standard and people use it for jewelry, coinage and other purposes.
When Bretton-Woods was abandoned in the 1970's, market forces of supply and demand controlled exchange rates. The main characteristic of this period was an extreme precariousness, which led to market deregulation, open trade and a rise in speculators. The advent of computerized transactions has led to the main business of the exchange being speculation in the futures of different currencies, rather than the buying and selling of goods.
This lead to the Foreign Exchange Market. The Foreign Exchange Market (FOREX) is the largest market in terms of the value of cash traded, with an average daily value that is greater than $1.9 trillion. The FOREX market (Foreign Exchange market) is not limited to any one country or time of operation. FOREX market as an inter-bank marke ...