ANCIENT TIMES

	Foreign exchange dealing may be traced back to the early stages of history, possibly beginning with the introduction of coinage by the ancient Egyptians, and the use of paper notes by the Babylonians. Certainly by biblical times, the Middle East saw a rudimentary international monetary system when the Roman gold coin aureus gained worldwide acceptance followed by the silver denarius, both a common stock among money changers of the period.
By the Middle Ages, foreign exchange became a function of international banking with the growth in the use of bills of exchange by the merchant princes and international debt papers by the budding European powers in the course of their underwriting the period's wars.
THE GOLD STANDARD, 1816 - 1933
The gold standard was a fixed commodity standard: participating countries fixed a physical weight of gold for the currency in circulation, making it directly redeemable in the form of the precious metal. In 1816 for instance, the pound sterling was defined as 123.27 grains of gold, which was on its way to becoming the foremost reserve currency and was at the time the principal component of the international capital market. This led to the expression "as good as gold" when applied to Sterling-the Bank of England at the time gained stability and prestige as the premier monetary authority. Of the major currencies, the U.S. dollar adopted the gold standard late in 1879 and became the standard-bearer, replacing the British pound when Britain and other European countries came off the system with the outbreak of world War I in 1914. Eventually, though, the worsening international depression led even the dollar off the gold standard by 1933; this marked the period of collapse in international trade and financial flows prior to World War II.
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THE BRETTON WOODS SYSTEM, 1944-1973

The post - World Wr II period saw Great Britain's economy in ruins, its infrastructure having been bombed. The country's confidence with its currency was at a low. By contrast, the United States, thanks to its physical isolation, was left relatively unscathed by the war. Its industrial might was ready to be turned to civilian purposes. This then has led to the dollar's rise to prominence, becoming the reserve currency of choice and staple to the international financial markets. Bretton woods came about in July 1944 when 45 countries attended, at the behest of the United States, a conference to formulate a new international financial framework. This framework was designed to ensure prosperity in the post-war period and prevent the recurrence of the 1930s global depression. Named after a resort hotel in New Hampshire, the Bretton -Woods system formalized the role of the U.S. dollar as the new global reserve currency, with its value fixed into gold. The united Stares assumed the responsibility of ensuring convertibility while other currencies were pegged to the dollar. Among the key features of the new framework were: Fixed but adjustable exchange rate The International Monetary Fund The World Bank

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THE END OF BRETTON WOODS AND FLOATING EXCHANGE RATES

After closet o three decades of running the international financial system, Bretton Woods finally went the way of history due to growing structural imbalances among the economies, Leading to mounting volatility and speculation in a one-year period from June 1972 to June 7973. At the time the United Kingdom, facing deficit problems, initially floated the sterling. Then it was devaluated further in February of 1973 losing 11 percent of its value along with the Swiss franc and the Japanese yen. This eventually led to the European Economic Community floating their currencies as well.

At the core of Bretton woods' problems were deteriorating confidence in the dollars' ability to maintain full convertibility and the unwillingness of surplus countries to revalue for its adverse impact in external trade. Despite a last-ditch effort by the Group of Ten finance ministers through the Smithsonian Agreement in December 1971, the international financial system from 1973 onwards saw market-driven floating exchange rates taking hold. Several times efforts for Reestablishing controlled systems were undertaken with varying levels of success. The most well known of these was Europe's Exchange Rate Mechanism of the 1990s which eventually led to the European Monetary Union.