Chapter 1: Evolution of International Trade PDF

CHAPTER 1: EVOLUTION OF INTERNATIONAL TRADE 1.1 A GLIMPSE World Trade Organization ▪ The main historical theories are called classical and ar...

CHAPTER 1: EVOLUTION OF INTERNATIONAL TRADE 1.1 A GLIMPSE World Trade Organization ▪ The main historical theories are called classical and are ▪ The only global international organization dealing with the from the perspective of a country, or country-based. rules of trade between nations. ▪ The goal is to ensure that trade flows as smoothly, ▪ By mid 20th century theories began to shift to explain from a predictably and freely as possible, to help producers of firm's perspective, Hence, referred to as modern and are goods and services, exporters and importers conduct their firm-based or company-based. business. ▪ The theory is a classical, country-based international trade Roles: theory that states that a country's wealth is determined by its 1. It operates a global system of trade rules. holdings of gold and silver. 2. It acts a forum for negotiating trade agreements. ▪ Division of labor is the separation of a work process into a 3. It settles trade disputes between its members. number of tasks, with each task performed by a separate 4. It supports the need of developing counties. person or group of persons to boost productivity and efficiency and enhance specialization. ▪ The precursor of General Agreement on Tariffs and Trade (GATT) which was established by a multilateral treaty of 23 ▪ Trade surplus is the amount by which the value of a countries in 1947 World War II which awakened new country's exports exceeds the cost of its imports. multilateral institutions dedicated economic cooperation: ▪ Smith and Ricardo herald the formulation of a theory of ▪ World Bank (founded in 1944) free trade that opposes mercantilist policies of protection. ▪ International Monetary Fund (founded in 1944) ▪ David Hume offered the theory of the price-specie flow Chairpersons: mechanism. 1. General Council (including bodies reporting to the ▪ Industrial capitalism was the second phase of capitalism in Trade Negotiations Committee) which industries/factories became the dominant factor in the 2. Goods Council production of goods. 3. Service Council ▪ In a free trade system, individuals benefit from a greater ▪ Ngozi Okonjo-lweala, former minister of Nigeria was choice of affordable goods, while mercantilism restricts appointed as the current Director General on March 2021 to imports and reduces the choices available to consumers. August 2025 which make her as the first woman and the first African to serve WTO. ▪ Absolute advantage is the country’s inherent ability to ▪ Decisions are made by ministers, ambassadors or delegates produce specific goods efficiently and effectively at a of each member governments usually every after 2 years at relatively lower marginal cost. Geneva, Switzerland. ▪ Comparative advantage refers to the country’s capability to ▪ They had to travel long distances to find food in nomadic produce the specific good at a lower marginal cost and groups. It paved way for the system of trading. opportunity cost. ▪ Then people started settling down and started cultivation and ▪ Marginal cost is the cost incurred on producing an farming. additional unit of a product. Opportunity cost means the value you will get from an alternative that you did not ▪ The history of bartering can be traced back to 6000 BC, choose. when the barter system was introduced by the tribes of Mesopotamia, then adopted by the Phoenicians, and ▪ The Standard Theory of International Trade has evolved improved by the Babylonians. into the Theory of International Trade and Commercial Policy, still considered to be one of the oldest branches of ▪ People used to exchange goods for weapons, teas and economic thought. spices. Salt was so valuable at that time that the salary of Roman soldiers was paid in salt. ▪ Even human skulls were used for barter. 1.2 BARTER ▪ Bartering involves a direct trade or exchange of goods and services. It is the process of trading goods and services 1.3 ORIGIN OF MONEY between two parties without the use of money. ▪ Salt, Shells, feathers and animal teeth were used as ▪ Advantage - It does not involve money and is very simple. money. Then, traders wanted something nonperishable, easy to carry which led to the use of metal pieces. ▪ Disadvantage - it is difficult to find people who need what other people have, and there is no standard measure of ▪ The first recognizable metal coins appeared in China in value. 1000 BC. It consisted of miniature hoes and bill hooks. ▪ In addition, it is time consuming, and goods are ▪ Sometime around 770 BC, miniature replicas of tools and perishable. weapons cast in bronze were used by the Chinese as a medium of exchange. The small bronze celts and bronze ▪ Even today, there are swap markets, online auctions, and rings played a monetary role. numerous websites that offer online bartering arrangements. ▪ Around 700 BC, Chinese moved from coins to paper. By the ▪ The early humans had very little needs. They used leaves time Marco Polo visited China in AD 1271, the emperor and animal skin as clothes and ate vegetables, fruits, fish already holds money supply and various denominations. and animal meat. ▪ Objects in the shape of circles became some of the first coins. ▪ The first mint, an industrial facility to manufacture coins, was money printed on playing cards. Card money served as established in Lydia (now western Turkey). money in Canada, just as coin did in France. ▪ Minting is the process of making a coin by stamping metal. ▪ The advent of money led to an increase in international trade. ▪ In 600 BC, around the time China started using paper money, Lydia's King Alyattes minted the first official currency - Electrum (a naturally occurring alloy of gold and 1.4 HISTORY OF THE PHILIPPINE CURRENCY silver). ▪ Barter between Philippines, China, Java, Borneo and ▪ King Croesus installed the first bimetallic monetary Thailand was the means of trading long before the Spaniards system - Coeseid (pure gold and pure silver coins). came to the Philippines. However, the inconvenience of the ▪ The foundation deposit of Artemisium and Euphesus barter system led to a specific medium of exchange. shows that supports that Electrum came before Coesus. ▪ Barter rings made in gold were used in the ancient times for ▪ The first regular system of exchange in Canada occurred in personal adornment, jewelry and first local form of coinage Tadoussac, where French traders bartered with called Piloncitos. Embossed with letters “MA” or “M” Montagnais people. because it was believed that it was the name by which Philippines was known to Chinese traders. ▪ The first colonial settlement in Quebec was established by Samuel de Champlain (1608). The beaver pelt was the Spanish Era universally accepted medium of exchange in the colony. As economic and financial needs became more complex, coins ▪ We were already trading with China, Japan, Siam, India, from France came to be widely used. Cambodia, Borneo and Moluccas. ▪ Silver and copper coins designed especially for the colonies ▪ Manila became the center of commerce then closed it to all were minted in 1670. countries except Mexico. They ruled for 300 years. ▪ During the mid-1600s, Spanish dollars (piastres) ▪ The cobs or macuquinas (silver coins) of colonial mints represented the first distinctive Canadian coins. were the earliest coins brought by the galleons of Mexico and other Spanish colonies. ▪ The livre (French for "pound') was the currency of the Kingdom of France and its predecessor state of West ▪ Due to the shortage of fractional coins, the barillas was Francia from 1781 to 1794. struck in the Philippines as ordered by the Royalty of Spain. ▪ In 1685, Jacques de Meulles, Intendant of Justice, Police, ▪ Barilla, a crude bronze or copper coin worth one centavo and Finance, came up with the temporary issuance of paper was the first coin struck in the country. ▪ Coins from other Spanish colonies also reached the ▪ The El Banco Espanol Filipino was renamed to Bank of the Philippines and were counter-stamped to legalize circulation. Philippine Islands in 1912 paved a way to use English in all These includes gold coins with the portrait of Queen Isabel notes and coins issued in 1933. (minted in Manila), Silver Pesos with profile of young Alfonso XIII (last coins minted in Spain), pesos fuertes ▪ Beginning May 1918, treasury certificates replaced the silver issued by the country’s first bank and El Banco Español certificates series and one-peso note was added. Filipino de Isabel II were the first paper money to circulate in the country Japanese Occupation ▪ The outbreak of World War II caused a disturbance to Revolutionary Era monetary system. ▪ The Philippine Republic of 1989 was under General Emilio ▪ Notes circulated: Aguinaldo issued own copper coins and paper currency. 1. War notes with no back up reserves thus was called ▪ At the Malolos arsenal, two types of two-centavo copper “Mickey Mouse” money. coins were struck. One-peso and five-peso revolutionary 2. Guerilla notes or resistance currencies, which are low notes printed as Republika Filipina Papel Moneda de Un in demolition issued by provinces and sometimes Peso and Cinco Pesos were circulated. municipalities. Japanese 2 pesos = 100 pesos ▪ These were signed by Pedro Paterno, Mariano Limjap and Telesforo Chiudian. Philippine Republic American Period ▪ After gaining Independence, the country used old treasury certificates as currency overprinted with the word "Victory". ▪ Modern banking, currency, and credit systems were instituted making the Philippines one of the most prosperous ▪ With the establishment of the Central Bank of the Philippines countries in East Asia. in 1949, the first currencies issued were the English series notes printed by the The Thomas de la Rue & Co., Ltd in ▪ Monetary system was based on gold (gold standard) England and the coins were minted at the US Bureau of pledged 2 PHP = 1 USD by the Coinage Act in 1903. Mint. ▪ The coins issued bore designs of Filipino engraver and artist, ▪ The "Filipinization" of the republic coins and notes began in Melecio Figueroa. Coins from one-have centavo to one the late 60s and is carried through the present. peso. ▪ In the 70's, Ang Bagong Lipunan series notes circulated which were printed at the Security Printing Plant starting 1978.  ▪ A mobile / digital wallet stores payment information on a ▪ The New Design series of bank notes issued in 1895 mobile device usually in an app that utilizes different replaced ABL series in 1985. technologies in the payment process. ▪ 10 years later, new series of coins and notes were issued of ▪ They commonly work through complex encryption and the new Bangko Sentral ng Pilipinas. tokenization, a method using time limited token numbers generated to process specific transaction using your already- encrypted card “stored” in your wallet. 1.5 MOBILE PAYMENTS AND INTERNET PAYMENTS ▪ Quick response (QR) codes are trademark of a type of ▪ Mobile payments are money rendered for a product or matrix barcode (type 2D barcode) readable by smartphones service through a portable electronic device such as cell created in 1994 by Japanese automotive industry. phone, smart phone or tablet device. Advantages of QR code: ▪ Services like Google Pay are vying for retailers to accept a. It stores a large volume of data. their platforms for point of sale (POS) payments. b. It can be scanned from a screen, not just paper. ▪ POS is a place such as checkout counters where a customer c. It can be read even if part of the code is damaged. makes the payment for goods and services. d. It is safer because information can be encrypted. ▪ In 2021, the use of Near Field Communication (NFC) ▪ Short Messaging (or messaging) Services (SMS) also payments is growing rapidly in the UK. called premium SMS payments and direct carrier billing. SMS payments simply mean paying for products and ▪ Sound wave-based (SWB) or sound signal-based (SSB) services via a text message. mobile payments represent a newer, cutting-edge solution that works for most payee's. Pay-by-sound uses advanced, ▪ Direct carrier billing (DCB) is similar to SMS payments ultra-low power, wireless transmission technology to transmit because you pay through your mobile carrier instead of data. using your bank details. ▪ Magnetic Secure Transmission is another way to pay with ▪ Internet Payments can be done on desktops, laptops or a mobile phone through a card terminal. MST is when phone even phones. This was commonly referred to as wireless emits a magnetic signal imitating the magnetic strips on the application protocol (WAP) payments. payer’s credit card. ▪ Mobile Banking is using an app provided by user’s bank, ▪ NFC and MST is similarly secure as they both use a secure through which you can conduct financial transactions directly tokenization system and is more secure than the physical from you. card. ▪ Payment links or pay by link is commonly referred to a ledger” or a “global ledger” built on a data source known as button/link sent in an email, text message, messaging app or “blocks”. over social media. ▪ Cryptocurrencies use cryptography, the process of protecting information using codes, for security. ▪ Neobank literally means “new bank” from the Greek word “Neos”. They are classified as a financial technology solution ▪ However, having no intrinsic value, there are also significant (fintech) solution. risks associated with crypto currencies. Their worth come from their users. The more users a coin has, the more useful it becomes, and the higher it price goes. 1.6 VIRTUAL CURRENCIES ▪ China has already developed a Central Bank- backed crypto, ▪ Under the BSP Circular No 944 Definition of Terms, and in the US it was discussed as part of the C-19 stimulus. Cryptocurrency or virtual/digital currency is any type of digital unit that is used as a medium of exchange or a form of ▪ Decentralized cryptocoin markets run through a blockchain digitally stored value generated by agreement within the relying on a peer-to-peer protocol. community of virtual currency users. It is referred to as ▪ When it comes to crypto currency exchange websites, “digital gold” or “altcoins”. It is virtual and has no physical however, centralization remains a core concept. form. ▪ Fiat currency or cash, on the other hand is the real Top 10 5-star rated digital currencies as of November 19, currency. Coins and paper money (bills) issued and printed 2024 by the central bank of a country are fiat currency, fully backed up by the government and is acceptable as payment 1. Bitcoin (BTC) for debts for public and private debts. ▪ Market cap: $1.8 trillion ▪ E-money is a digital representation of fiat currency stored in ▪ Year-over-year return: 150% digital wallets or e-wallets. ▪ Created in 2009 by Satoshi Nakamoto, bitcoin (BTC) is the original cryptocurrency. As with most cryptocurrencies, BTC ▪ Virtual currency, which is stored digitally, would still be runs on a blockchain, or a ledger logging transactions converted first to Philippine peso, transferred to a destination distributed across a network of thousands of computers. wallet or be withdrawn as cash. It is done through virtual Because additions to the distributed ledgers must be verified currency exchange. Crypto currencies are regulated by the by solving a cryptographic puzzle, a process called proof of BSP. work, bitcoin is kept secure and safe from fraudsters. ▪ Bitcoin’s price has skyrocketed as it’s become a household ▪ Cryptocurrencies work through blockchain technology. name. In May 2016, you could buy one bitcoin for about Blockchain is a special kind of database, a “distributed $500. As of Nov. 26, 2024, a single bitcoin’s price was around $92,139. That’s a growth of 18,328%. 2. Ethereum (ETH) ▪ When it launched in 2020, SOL’s price started at $0.77. By late November 2024, its price was around $228.79, a gain of ▪ Market cap: $399.3 billion 29,613%. ▪ Year-over-year return: 64% ▪ Both a cryptocurrency and a blockchain platform, Ethereum is a favorite of program developers because of its potential 5. Binance Coin (BNB) applications, like so-called smart contracts that automatically ▪ Market cap: $88.4 billion execute when conditions are met and non-fungible tokens ▪ Year-over-year return: 172% (NFTs). ▪ Binance Coin (BNB) is a form of cryptocurrency that you can ▪ Ethereum has also experienced tremendous growth. From use to trade and pay fees on Binance, one of the largest April 2016 to the end of November 2024, its price went from crypto exchanges in the world. Since its launch in 2017, about $11 to around $3,315, increasing 30,038%. Binance Coin has expanded past merely facilitating trades on Binance’s exchange platform. Now, it can be used for 3. Tether (USDT) trading, payment processing or even booking travel arrangements. It can also be traded or exchanged for other ▪ Market cap: $132.7 billion forms of cryptocurrency, such as Ethereum or bitcoin. ▪ Year-over-year return: 0% ▪ BNB’s price in 2017 was just $0.10. By late November 2024, ▪ Unlike some other forms of cryptocurrency, Tether (USDT) is its price had risen to around $614, a gain of 613,732%. a stablecoin, meaning it’s backed by fiat currencies like U.S. dollars and the Euro and hypothetically keeps a value equal to one of those denominations. In theory, this means Tether’s 6. XRP (XRP) value is supposed to be more consistent than other Market cap: $77.1 billion cryptocurrencies, and it’s favored by investors who are wary ▪ Year-over-year return: 124% of the extreme volatility of other coins. ▪ Created by some of the same founders as Ripple, a digital technology and payment processing company, XRP can be 4. Solana (SOL) used on that network to facilitate exchanges of different currency types, including fiat currencies and other major ▪ Market cap: $108.6 billion cryptocurrencies. ▪ Year-over-year return: 319% ▪ At the beginning of 2017, the price of XRP was $0.006. As of ▪ Developed to help power decentralized finance (DeFi) uses, Nov. 26, 2024, its price reached $1.35, equal to a rise of decentralized apps (DApps) and smart contracts, Solana 22,443%. runs on a unique hybrid proof-of-stake and proof-of-history mechanisms to process transactions quickly and securely. SOL, Solana’s native token, powers the platform. 7. Dogecoin (DOGE) ▪ Cardano’s ADA token has had relatively modest growth compared to other major crypto coins. In 2017, ADA’s price ▪ Market cap: $55.3 billion was $0.02. As of Nov. 26, 2024, its price was $0.91. This is ▪ Year-over-year return: 379% an increase of 4,447%. ▪ Dogecoin was famously started as a joke in 2013 but rapidly evolved into a prominent cryptocurrency thanks to a dedicated community and creative memes. Unlike many 10. Avalanche (AVAX) other cryptos, there is no limit on the number of Dogecoins ▪ Market cap: $17.0 billion that can be created, which leaves the currency susceptible to ▪ Year-over-year return: 103% devaluation as supply increases. ▪ Avalanche delivers two important features: fast transaction ▪ Dogecoin’s price in 2017 was $0.0002. By November 2024, speeds and low transaction fees. AVAX also has a healthy its price was at $0.38, up 188,200%. total value locked (TVL) or amount of money deposited in decentralized finance. TVL is the total value of crypto assets 8. U.S. Dollar Coin (USDC) deposited in a decentralized finance (DeFi) protocol, such as staking, lending or liquidity pools. ▪ Market cap: $38.6 billion ▪ A high TVL indicates the popularity of a protocol and the ▪ Year-over-year return: 0% adaption rate of a particular cryptocurrency. Avalanche’s ▪ Like Tether, USD Coin (USDC) is a stablecoin, meaning it’s price today is $41 backed by U.S. dollars and aims for a 1 USD to 1 USDC ratio. USDC is powered by Ethereum, and you can use USD Coin to complete global transactions. 9. Cardano (ADA) ▪ Market cap: $31.9 billion ▪ Year-over-year return: 140% ▪ Somewhat later to the crypto scene, Cardano (ADA) is notable for its early embrace of proof of-stake validation. This method expedites transaction time and decreases energy usage and environmental impact by removing the competitive, problem-solving aspect of transaction verification in platforms like bitcoin. Cardano also works like Ethereum to enable smart contracts and decentralized applications, which ADA, its native coin, powers.