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The Story behind the Dressage Letters – 2 possible explanationsWendy Christoff

Letters were not used until international competitions began with the Olympics in the 1900's. The first competition in 1912 did not have letters.

No Olympics were held in 1916 because of World War I. The letters just "appeared' in 1920 Olympics and no one has ever been able to find the origin although various theories have been advanced over the years, including one  theory that the letters were the first letter of the names of cities conquered by the Romans.

A second possibility:

"It appears that in the Old Imperial German Court the walls of the Royal Mews/Stable yard were initially marked with letters indicating where each Courtier and/or riders horse was to be stood to await its rider.

K = Kaiser/King
F = Furst/Prince
P = Pferdknecht/Ostler
V = Vassal
E = Edeling/Ehrengast/Guest of Honour
B = Bannertrager/Standard Bearer
S = Schzkanzler/Chancellor of Exchequer
R = Ritter/Knight
M = Meier/Steward
H = Hofsmarshall/Lord Chancellor"

However, in the 1920 Olympics, the letters on the centerline were also used: A, D, L, X, I, G, and C.