Foreign Exchange Market: The Dance of Currencies

Our Financial History: When I first heard of the foreign exchange market, my eyes lit up in amazement.

Before we get into our financial history, let me first take you back to 2020, before we had a national lockdown in South Africa.

I just knocked back from school, instead of doing my normal routine when I got back home (play PlayStation/Netflix).

Instead, this time around I was snatched by a desire, a craving unlike any other, akin to that of a person addicted to a substance yearning for their next fix ,

a desire that has allowed me to excess social networks with well-established investors in the country.

I had a desire to learn, read, and understand as much about our financial history and today’s monetary system

instead of praying that hyperinflation doesn’t strike the motherland like it did to Germany, Argentina, and most recently, Zimbabwe, etc.

The past has taught us over and over again that when government loses control of its currency supply,

economic instability follows because people’s pensions, savings, and purchasing power will be worthless overnight.

Now let us breakdown why these events take place in detail and later, when I get into the investing section,

I will discuss ways in which you can hedge against such phenomena if they were to occur in your country.

Foreign Exchange Market: Our Financial History

The foreign exchange market (forex for short) has a daily trading volume of $6.6 trillion.

This market is the biggest market to date, built up of key players, namely the commercial banks, investment banks, hedge funds, corporations, and retail traders.

Every class here has a different investment strategy, capital, and influence, but what they have in common is the urge to speculate on currencies.

Given the sheer size of participants, these speculations on future price movement contribute vastly to the market’s liquidity and dynamics.

Importance of Understanding our Financial History

Pearl Sydenstricker Buck, best known for her novel The Good Earth, which won the Pulitzer Prize in 1932, consistently emphasized the importance of understanding history, both to grasp the present and to anticipate the future.

It’s important to understand history because much of what we see today is rooted in the past.

Financial systems, global events, and even our everyday decisions are shaped by historical patterns and decisions.

My purpose with this website—alongside my YouTube channel—is to provide educational content that empowers readers to position themselves as players of the system, not victims of it.

 We do this by exploring how to follow smart money, whether through forex trading or wealth preservation strategies used by the wealthy, and how you can position yourself for opportunity in 2025 and beyond.

Trading, much like martial arts, requires discipline, strategy, emotional control, and a commitment to continuous learning.

You don’t want to be a trader or investor who simply reacts without understanding why certain price movements or events occur.

You want to be the kind of trader or investor who recognizes patterns, anticipates outcomes, and capitalizes on opportunities with confidence and clarity.

Knowing history is your secret weapon.

Take Dr. Dre, one of the greatest American hip-hop producers of all time.
He didn’t just love music, he studied it.

He learned from producers before his prime, like Rick Rubin, who worked with legends like Michael Jackson and Run-DMC.

Dre analysed the beats, the sounds, and the structure, and then used that foundation to craft his own iconic sound.

The same principle applies here: we study the past to better understand today’s marketplace and shape our future intelligently.

Bretton Woods System: Our Financial History

As World War II neared its end, 44 Allied nations gathered at the Mount Washington Hotel for what became known as the Bretton Woods Conference.

 Their mission was to reshape the global economic system post-war.

At the time, Germany: under Adolf Hitler and the Nazi party was at war with the Allied nations, including the United States, the United Kingdom, France, and the Soviet Union.

The representatives of the 44 Allied nations had to come up with a global system that could help prevent future competitive devaluation.

Today, governments of all countries have the ability to devalue their currency value to help boost

exports by making it cheaper for other countries to purchase their export products at competitive prices.

The downside to this strategy is that it will cause a country’s currency to become weak, decreasing its purchasing power.

In 1944, the 44 Allied nations established the International Monetary Fund (IMF) and the World Bank.

The IMF was created to monitor exchange rates and provide financial assistance to countries facing economic instability.

For instance, if the South African government wanted to enhance productivity and

reduce unemployment but was experiencing budget deficits (spending more than they are making),

they could borrow money from the IMF. This borrowed capital could be utilized to create jobs, distribute stimulus checks, and enhance the labor force’s skills.

Birth of a Fixed Exchange Rate

According to Federal Reserve History from July 1 to July 22, 1944, representatives of the Allied nations signed the Bretton Woods agreement on its final day.

This agreement meant that the US dollar became pegged to gold at a fixed rate (1 ounce of gold = $35), establishing a universal standard.

This arrangement allowed countries around the world to exchange their domestic currencies for US dollars, which could then be used to purchase gold.

The decision was made because, at that time, the United States Dollar was considered as good as gold,

and the US controlled two-thirds of the world’s gold reserves.

Under this system, all currencies were backed by gold. To minimize the continuous

transportation of gold back and forth, it was typically stored safely in the USA.

However, with the dollar pegged to gold and countries exchanging their domestic currencies into dollars,

the United States began printing more money, leading to more money in circulation than there are gold reserves to back it.

This increase in circulating dollars exceeded their gold reserves, financing projects such as the Vietnam War and space missions to the moon.

This imbalance created concerns among other nations about the US printing excessive money relative to its gold reserves.

In response, France decided to convert dollars into gold ( they didn’t trust the U.S. government),

initiating a trend of countries doing the same. This led to a snowball effect, exacerbating the outflow of gold from American vaults.

To address this crisis, on August 15, 1971, former President Nixon gave a speech announcing an emergency suspension

of the convertibility of the dollar to gold. This marked the end of the Bretton Woods system.

What does former President Nixon mean by the emergency suspension of the convertibility of the dollar to gold?

In essence, this decision signaled the end of the gold standard and introduced a new monetary order

where the dollar was no longer backed by gold but solely by government promises.

Previously, pegging the dollar to gold encouraged disciplined government spending, as it prevented spending beyond the available gold reserves.

After World War II, the US emerged as the largest economy, and the dollar became a stable currency, backed by gold at a fixed value of $35 per ounce.

However, in 1971, gold ceased to serve as the standard measure of value, and the dollar continued to be the preferred currency for international trade.

For example, if South Africa wanted to purchase $251 million worth of aluminum from China,

they would first convert their local currency, such as the South African rand, to dollars before making the purchase.

Today, the United States holds significant global power due to the dollar’s status as the world reserve currency.

The US managed to persuade Saudi Arabia to sell oil exclusively in dollars, promising military security in return.

This arrangement was a game-changer, as it ensured that countries needed dollars to access oil, cementing the dollar’s dominance in international trade.

In Conclusion: Our Financial History

When we look back at the historical roots of the forex market, we will be better suited to map out

an action plan that can act as a hedge against present and future prices.

Today, it is more important than ever to invest in yourself. The world is continuously evolving;

there is simply no time to sit back and relax, or you will definitely be left behind as our purchasing power diminishes year after year.

From the Bretton Woods system to a fiat currency system (which marked a turning point in history),

after former US President Nixon suspended the convertibility of the dollar to gold,

this had a significant influence on shaping the global scale because now countries around the world are not restricted to the amount of debt they can have,

often resulting in many of them finding themselves in large trade deficits.

The United States holds the title for the largest trade deficit globally, with exports consistently falling short of imports by billions of dollars each year.

Additionally, the nation carries the highest national debt, which currently stands at $34 trillion,

as reported by the Peter G. Peterson Foundation.

The government’s tax revenue falls short of covering this debt.

So, as we carefully analyze past events, we will be able to understand how our monetary system works

and what does this mean for us and why some experts argue that governments

do not work for the people but instead the people work for the governments.

It does not matter whether you’re a seasoned investor or a curious newcomer; recognizing

the dance of currencies is not just about predicting price movements;

it’s about making sense of and understanding the forces that drive them.

As we move forward, let’s learn from history and aim for a better understanding of how nations,

economies, and currencies interact dynamically (constantly changing and influencing each other).