The Evolution of the Modern Forex Market: From Bretton Woods to AI-Driven Trading

The foreign exchange (forex) market, as we know it today, traces its origins to the collapse of the Bretton Woods System in the early 1970s. While this post-World War II system had promoted stability and fostered economic recovery, its eventual demise paved the way for a more dynamic and flexible global currency market.

A pivotal moment in this transition occurred in August 1971, when U.S. President Richard Nixon suspended the dollar’s convertibility into gold, a move famously referred to as the “Nixon Shock.” This decision effectively dismantled the fixed exchange rate system that had underpinned Bretton Woods. Economic pressures, including declining U.S. gold reserves and persistent balance of payments deficits, had made the system untenable. The rigidity of fixed exchange rates further complicated countries’ ability to respond to changing economic conditions.