A Discussion On Forex History In India

Study of the history of forex trading clearly shows that the foreign currency exchange reforms were introduced during the World War II i.e. during the period of 1939- 1945. An order in council was passed on 15 September 1939 and it was implemented the very next day.

The forex history of Canada also saw the formation of The Foreign Exchange Control Order on 16 September 1971, which designed a legal framework for the control of foreign currency. Then another board named Exchange Fund Account was formed at the same time to take care of Canada’s gold reserve. This board was working under the minister of finance and the Governor of the Bank of Canada was the chairman of this board. The daily operations of the Foreign Exchange Control Board (FECB) were carried out mainly by the staff of the Bank of Canada.

During the earlier currency trading history of Canada, the FECB was granted authority through the Foreign Exchange Control Order to fix the exchange rate of the Canadian dollar against the U.S. dollar and the pound sterling with subject to ministerial approval. The Foreign Exchange Acquisition Order offered very stiff controls on the forex trading market. The Canadian residents along with the bank of Canada were required to sell all the foreign exchange they owned to the FECB although there were few exceptions.

The Canadian forex history also indicates a sharp difference between the economic reforms implemented during World War I and World War II. During the World War I no such strict controls were implanted. During 1914, the principal foreign creditor of Canada was United Kingdom having a lot of currency investment in form of direct investment or denominated in sterling.

However, the situation changed by the year 1939. Now, United States had become the chief source of Canada’s foreign exchange and there was concern that the neutral U.S. residents would not wish to hold the securities of a belligerent country. Therefore British holdings of U.S. dollars were also much diminished. The devaluation of the official exchange rate of inconvertible Canadian dollar took place in 1949. It continued till the 19949–50. Then forex history in Canada saw a sudden improvement in its economic prospects and a strong currency flow from United States.

Another important event in the Canadian forex history dates back to 1940s when there was an active debate regarding whether the unofficial rate was the true value of the Canadian dollar was taking place. According to the Bank of Canada with the limited use inconvertible Canadian currency and comparatively smaller size of the market, the unofficial prices were not necessarily an accurate reflection of sentiment towards the Canadian dollar. Many world famous economists Bank of Canada’s deputy governor and wartime economic adviser to the government debated over that there was no particular reason why a small market should necessarily lead to a distorted price. It was also strongly argued that a flexible exchange rate should be introduced by Canada rather than relying on a system of exchange controls to balance trade. While there is no evidence directly linking between the debate and the Canada’s subsequent decision to float the Canadian dollar, it undoubtedly had an impact on the future operations of the Bank of Canada.