The concept of foreign exchange or forex in the context of world economy has evoluted over a long period of time, let us read about the history of forex and the major events that reformed the world of forex to create and maintain complete awareness about forex history.

The Barter System

In ancient times, trade was based on the barter system at the community level and there was no need for a currency. Under this system, the value of goods was expressed in terms of other goods and these values were measured in different and the exchange was generally unilateral though it was multilateral at times. But since this system had some limitations, various alternatives were developed.

Before we read about these alternatives, let us read about limitations of the barter system.

1. In a barter economy, it is difficult to measure the value of all goods.

2. A barter transaction cannot occur if an individual wants to buy a specific amount of goods belonging to another individual. Since some products cannot be divided due to their intrinsic characteristics, the barter system failed to live up to expectations of the market and its constituents.

3. Some barter economies relied on non-durable and perishable goods that pose a difficulty in storing wealth over a period of time.

The Gold Standard System

Due to limitations of the barter system, a hunt for efficient alternative soon found its answer in gold, the yellow metal. The reasons why the metal became a success was because it was difficult to find new sources of gold, it could not be manufactured or printed, and it was not easily mined and since it was the most ductile and malleable of all metals, gold became the world's preferred choice for exchange. However, the fact that gold is not easy to transport due to its weight, world governments started printing bills or...