Till World War I it was always in prinicple feasible to go to the central bank and ask for gold or silver in place of your bank notes. Of course, this very rarely happened in significant amounts and many national banks stopped keeping enough gold to cover.
To stop an analogous disaster occuring in a defenseless country again, the Bretton Woods agreement was drawn up in 1944. This ‘permanently’ pegged all national currencies to the US buck, and fixed the value of the dollar against gold at $35 per oz. Round the same time, the world financial Fund and World Bank were made to assist in maintaining world business stability. This held until the early 1970s. The US dollar was dropped as a reference point for the majority of the major countrywide currencies, and the relative values of different currencies began to fluctuate according to business conditions and market forces. All of a sudden it was possible to trade in currencies, and the finance establishments were quick to recognize the potential. Banks had to exchange money to offer their clients with foreign currencies for travel and importing goods, but pretty shortly they were exchanging much more than they wanted to profit from the continual rise and fall in the values of the different currencies. Continuously, personal stockholders joined in the game and the currency market mushroomed. To deal with the massive numbers of potential new clients and because their costs were dropping, brokers commenced reducing the minimum investment amount. At that point in currency exchange history, daily trading turnover has reached between $3 and $4 trillion, more than the trading volume of all of the world’s stock and bonds markets added together.
