World-renowned economist and champion of free markets, the late Milton Friedman is also acknowledged as the father of financial futures. After the 1971 collapse of the post World War II pact among global leaders known as the “Bretton Woods Agreement” that set fixed exchange rates in currencies, the University of Chicago economist asserted that flexible exchange rates were indeed workable. It is this strong conviction that helped set the groundwork for currency futures and broader access to these markets. Friedman authored a study in December 1971, “The Need for Futures Markets in Currencies,” which ultimately helped change the destiny of futures markets around the world. After that study, the Chicago Mercantile Exchange introduced the first futures-based financial instruments, ushering in the era of financial derivatives. The growth of these markets is at a magnitude that gives them nearly as big a role as central banks have in determining currency supply and demand and this growth demonstrates Friedman’s logic that values of products are best determined by the forces of supply and demand.
