Richard Nixon's role in creating Thomson Reuters

Had it not been for the collapse of the Bretton Woods agreement, Reuters could conceivably have remained a small news agency, struggling to survive against ever-increasing competition during the last quarter of the 20th Century.

BRETTON WOODS AND REUTERS

The United Nations Monetary and Financial Conference in 1944 was a gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire.

Its aim: to regulate the international monetary and financial order after the total disruption of the Second World War. As a result, the Bretton Woods system of fixed exchange rate management was set up and remained an important part of the fiscal policy of the 44 signatory nations for the next 27 years.

Everything changed in 1971 when American President Richard Nixon suddenly and unilaterally cancelled the agreement. Within a very short time, the entire framework collapsed worldwide, leading to an immense expansion of foreign exchange dealing.

Currency, rather than being a means of purchasing goods and commodities, became a commodity in its own right. The word “Forex” was coined.

The problem for banks and dealers was that there was no adequate structure in place for this rapidly expanding market place and it was impossible to receive quotations with sufficient speed. Dependence upon telephones and telex was unsatisfactory, since by the time an answer to a request for, say, a bank’s dollar/sterling price had been given and transmitted, that price had already been changed. Seconds could be crucial.

TRADING GOES ELECTRONIC

It was André Villeneuve of Reuters who first proposed the idea that the company should install computer terminals in the offices of banks and other foreign exchange dealers. Reuters would, in this way, create its own electronic market place.

Market-makers (contributors) would be able to insert their foreign exchange and money rates into the system. At the press of a button, these rates would become available on screen to interested parties (recipients) such as other banks and international businesses. The revolutionary idea was that both parties would be charged for access to this interactive system.

Almost at a stroke was born the entirely new concept of computerised contributed data. Two companies within the US already ran share information services on such a basis. But Reuters was at the very forefront in extending its thinking far beyond this “one-country” idea to the concept of bringing contributed data into the field of foreign exchange, a market which functioned between countries and between continents.

New agreements had to be reached with the London Trade Unions over the idea that data would be inserted, not by telegraphists at Reuters, but by customers. At first several banks could see no merit or point in a system under which they were expected to pay for inserting their own information. Some banks were reluctant to change the working practices of centuries and reveal such information. Brokers feared that they would lose business if the service established itself.

MONITOR ARRIVES AND CHANGES FINANCIAL MARKETS

The new system, called Monitor, first ran in London for a full working day on 25 June 1973. There were 15 contributors/recipients and 15 recipients. The breakthrough came between March and June 1974 when Reuters signed 109 contracts. When Monitor started to attract continental clients, the UK banks - at first the main contributors - saw, at last, a potential widening of their market. By June, there were 125 subscribers in the UK, and 121 in the rest of Europe. The Monitor range was subsequently extended to bonds (1975), commodities (1977), equities (1978) and US Government securities (1978). By 1983, company turnover was 14 times that of 1973.

For Reuters, Monitor had become the “goose which laid the golden egg”. In 1981, the Monitor Dealing Service went live, enabling subscribers not only to receive the latest rates and quotations but to buy, sell or lend money through the same screen. “Matching” of deals followed later but the new service was a great advance.

Reuters had been transformed. It was no longer a small news agency, often living from hand to mouth, but had become a successful and prosperous company. The course of events began which led to its flotation as a public company in 1984.

If President Nixon had not unilaterally cancelled America’s obligation to abide by the terms of the Bretton Woods agreement, would any of this have happened? Who can say? But there is little doubt that, for Reuters, it certainly wouldn’t have happened as specifically and with such speed.

Little did Prime Minister Gordon Brown probably realise that, if that agreement to regulate exchange rates had still been in existence, he would, almost certainly not have been speaking at Thomson Reuters office, in that location, on that day.

Such is history. ■