Genesis and Growth of the Forex Market

Genesis and Growth of the Forex Market
from outside the silver producers’ lobby eclipsed the pressure
from within, the administration changed its policies regarding the
relationship between the U.S. dollar and silver and dumped the peg.
Although we still see powerful lobbies exerting pressure on the U.S.
government to affect the value of the U.S. dollar, the sheer size of
the Forex market usually precludes this from happening. It takes an
astronomical amount of pressure to move the Forex market, and individual
governments and institutions are often incapable of mustering
enough force on their own. This evens out the playing field for everyone
involved in the market.

From 1900 to 1934, the U.S. dollar was fixed to a gold standard of
$20.67 per ounce of gold. In 1934, President Franklin D. Roosevelt
artificially reduced the value of a dollar by changing the exchange
rate from $20.67 per ounce of gold to $35 per ounce. This was a 69
percent drop in the value of the U.S. dollar. Instead of being able to
buy an ounce of gold for $20.67, you now had to come up with an
extra $14.33 to buy the same ounce of gold. But, in reality, even if you
could afford the price increase, you still wouldn’t be able to buy
any gold. To maintain control of the artificial devaluation he had
imposed on the U.S. dollar, Roosevelt also made it illegal for U.S.
citizens to own gold—aside from incidental gold jewelry or gold
used in industrial applications. This may sound extraordinary, but
it is true. And, as a result of this decision, the U.S. Treasury ceased
production of gold coins and destroyed a limited run on the famed
1933 illegal double eagle $20 gold coin. This prohibition lasted until
the 1960s.

While a dramatic, artificial change in the value of the U.S. dollar
may seem a bit extreme, Roosevelt had good reasons to make the
change. Roosevelt devalued the dollar to promote domestic economic
growth by making U.S. exports more attractive to foreign
buyers. If you are a British consumer and your British pound is worth
one U.S. dollar, you will be able to buy $1 worth of U.S. goods with
your British pound. However, if your British pound is suddenly now
worth two U.S. dollars, you will be able to buy $2 worth of U.S.
goods with your one British pound. The more you can buy with
your money, the more you are likely to buy.