During the twentieth century,the two world wars disrupted the development of the market.Countries stopped dealing with the enemy,and markets became fragmented and smaller.In the initial years after world war 1 the foreign exchange markets were extremely volatile and subject to large - scale speculative interest.Commercial transactions requiring the purchase or sale of foreign currency involved considerable risk,and hedging using forward contracts became the norm.In fact this practice was so wide spread and accepted in some areas that the act of forward hedging was regarded as a basic component of doing business.However,many banks politicians and policymakers in other jurisdictions believed that forward contracts were speculative in nature,and did not support the development of the market.In spite of such resistance,commercial needs prevailed and the market grew.
The suspension of the gold standard in 1931 combined with bank failures and problems of settlement with some currencies gave the foreign exchange markets a significant setback.It was very difficult to deal foreign exchange in the 1930's,but as with other markets,conditions returned more or less to normal by the middle of the decade.London became the largest center of foreign exchange dealings in the period between the two world wars,but other centers such as Paris,Zurich,Amsterdam,and New York also developed prominent roles.
Patrick Abboud
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