Recent History
Prior to 1971, foreign exchange rates were fixed by an agreement among the world's central banks called the Bretton Woods Accord. This agreement was entered into after World War II. The world was in a shambles and the Bretton Woods Accord was established to help stabilize the volatile situation by pegging the U.S. dollar to gold and all other currencies of the world to the U.S. dollar. In 1971 a new agreement was formulated to replace the Bretton Woods Accord but it was short lived. In 1973 the world's currencies began to be valued and exchanged based on a free-float system, a system still in place in 2006. The free-float system is a default system of currency trading. It works strictly on supply and demand of currencies. There are no limits on how much currencies can appreciate or depreciate in value measured against other currencies. Because this can cause volatility, central banks and governments have tried to regulate the values of their currencies, but it has become an increasingly costly proposition. Although no longer an official standard, the U.S. dollar remains the benchmark currency, with the Japanese yen (¥) and European euro ('‚¬) close behind