The modern forex market as we know it is younger than most people assume. For decades, currency values were pegged under the Bretton Woods system, established in 1944, which tied major currencies to the US dollar, itself convertible to gold at a fixed rate. This system created relative currency stability in the postwar era but limited the kind of speculative trading that defines today's market, since exchange rates barely moved outside narrow, government-managed bands.
Everything changed in 1971, when President Nixon suspended the dollar's convertibility to gold — an event now known as the "Nixon Shock." The decision was driven by mounting pressure on US gold reserves as other nations increasingly sought to redeem dollars for gold, a system that had become unsustainable as global trade and dollar reserves grew far faster than the US gold supply. Within a few years, major economies transitioned to floating exchange rates, where currency values are determined by market supply and demand rather than fixed government pegs. This shift effectively created the forex market as a continuously trading, price-discovery mechanism, rather than a static reference point set by treasury officials.
Retail access came much later. Through the 1990s and early 2000s, currency trading remained largely the domain of banks, hedge funds, and large institutions due to the capital and infrastructure required to participate. The rise of the internet and electronic trading platforms in the late 1990s began changing that, and by the mid-2000s, retail forex brokers offering leveraged trading to individual traders had become a global industry, extending a market once reserved for trading desks in London and New York to anyone with an internet connection.
Today's market — trading over $7.5 trillion daily according to Bank for International Settlements surveys — is a direct descendant of that 1971 policy shift, built on decades of technological change that turned an interbank system into one accessible from a smartphone.
The transition also reshaped how economists think about currency valuation altogether. Under fixed pegs, a currency's "correct" value was essentially a political decision, negotiated and defended by governments. In a floating system, value becomes an emergent property of millions of independent transactions, reacting continuously to interest rates, trade flows, and shifting expectations — a fundamentally different, and far more volatile, way for a currency's worth to be determined day to day.
