Foreign exchanges part 1

It is not necessary to insist on the indispensability of the foreign exchange market. All international commercial and financial operations take it into account. Domestic transactions on goods, services and financial assets are performed in different currencies; each country employs its own. International activity necessitates currency exchange. Nowadays we can see on the one hand the international opening up of economies and financial markets, and on the other hand the globalization of the activities of companies and financial institutions. They collectively reinforce the role of the foreign exchange market. International trade requires a market in which the supply of currencies is confronted by demand; that is basically how their prices are determined. The foreign exchange market indeed ensures that the supply of and demand for several hundred currencies are brought together and constantly discloses their local value. The size of this market is a reflection of the number of existing currencies and the volume of trade denominated in these currencies.
This was especially evident when the European single currency was at long last brought into being. From January 4, 1999, all transactions on the 11 financial markets of the countries comprising the euro zone were denominated in euros rather than in 11 separate currencies. If a French investor wishes to purchase German public stocks, he need no longer make a preliminary acquisition of deutschmarks. What was the case for the financial markets was extended and made compulsory for firms and individuals from 2002 onwards. Large-scale transactions involving the 11 currencies of the euro zone had previously provided grist for the mill of a foreign exchange market that all of a sudden closed shop. Since the beginning of the 1980s and following the opening up of virtually all capital markets, the international monetary and financial system devolved into a gigantic jigsaw puzzle whose pieces were connected by interest rate fluctuations and arbitration operations undertaken by a large cast of diversified economic actors. Yet well before the twentieth century, the export of capital had been an everyday reality. Just look at Florence as early as the thirteenth century and at Augsburg, Antwerp and Genoa in the sixteenth century! By the eighteenth century, capital was circulating not only in Europe but around the world:
Coins of the value of eight ‘‘espagnoles’’, minted with the white metal of America, crossed the Mediterranean, traversed the Turkish Empire and Persia and went on to reach India and China. From 1572 onwards, by way of Manila, the white American metal likewise crossed the Pacific and, at journey’s end, came once again to China via this new route.
That said, the depth, volume and number of currencies involved in these exchanges was in no way comparable to today’s. Foreign trade is accompanied by the development of currency exchanges. The great discoveries of European explorers set in motion trade in peppers, spices, silk and drugs and at the same time fostered the exchange of metal currencies:
From the end of the fourteenth century onwards, the archives of Francesco di Marco Datini, a merchant from Prato, near Florence, signal the give-and-take of bills of exchange between the cities of Italy and the hotbeds of European capitalism: Barcelona, Montpellier, Avignon, Paris, London, Bruges.