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On August 15, 1971, the United States of America unilaterally declared of canceling direct convertibility of its national currency to gold. It totally changed the way money exchange rates were defined and finished an epoch of Bretton Woods agreement. US dollar rate started floating and gold turned into an independent asset. This event is known in the Forex rate history as Nixon Shock, because despite of being long-expected, it was a total shock for the most part of countries. The world required several years from then on to develop and launch new rules for the international trading.
In January 1976 in Kingston city (Jamaica) the meeting of IMF participant countries was held, where Jamaican currency system was officially introduced and Charter of this international organization was affirmed.
From then on, countries could choose pricing system for their national currencies:
- Free floating exchange Forex rates. Though it could not be called absolutely free because The Central Banks remain the opportunity to implement their currency policy, first of all with the help of interventions;
- Limited flexible fx rates, when fluctuation corridor is fixed against other currencies or basket of currencies;
- Fixed Forex exchange rates.
Besides, The International Monetary Fund introduced a new payment system for international settlement - SDR - Special Drawing Rights (SDR), which only exists in a non-cash form. IMF participants received a certain share in SDR pro rate to their percentage in total capital of the fund. These shares were not constant and were regularly adjusted. SDR were qualified as reserve currency and apart from settlement purposes were also used as accumulative currency reserves on dedicated accounts. Apart from SDR and US dollar, by that moment following reserve currencies were presented: British pound, Japanese yen, Swiss frank, German mark, French frank.
Introducing of floating currency rates was not able to contribute to stabilization of many national economies, because of vast expenses for its maintenance. Therefore, such countries still had to support rough policy to fix their national currencies against the others. But for the largest economic powers, Jamaican system provided an opportunity to implement diversified currency policy, in which national rate served as a clear indicator of supply and demand for it, of export and import.
Emergence of Jamaican money exchange system can be considered a birth of international Forex market in the way we know it now.
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