Global Economy 2020-2024: History, Concepts, and Implications PDF

INTERNATIONAL MONETARY SYSTEM The international monetary system refers to the rules, practices, and institutions that govern currency exchange rates, cross-border movement of capital, and the transfer of money for international trade and financial transactions between countries. Ancient...

INTERNATIONAL MONETARY SYSTEM The international monetary system refers to the rules, practices, and institutions that govern currency exchange rates, cross-border movement of capital, and the transfer of money for international trade and financial transactions between countries. Ancient Currencies: One of the earliest forms of currency was commodity money, where objects like cattle, salt, shells or grain were used as mediums of exchange. Around 600 BC, the first coins were minted in Lydia (present-day Turkey), made of electrum (a natural alloy of gold and silver). Lydian lion coin Coin currencies eventually spread across ancient Greece, Rome, India, and China using metals like gold, silver, bronze. These are similar in type to gold pieces found in Indonesia and Thailand from the 10th and 11th centuries. Middle Ages: After the fall of Rome, commodity money resurfaced in many parts of Europe as coins were issued by local lords and authorities. Paper currency originated in China around 800 AD, with local deposit receipts from merchants gradually becoming accepted currency notes. --simplifying Tang dynasty larger monetary transactions - Jiaozi - private credit notes- promissory notes issued by merchants and deposit shops, redeemable for goods, coins or silk. Modern Era: - Gold and silver remained the basis for most nation-state currencies until the 19th century. -In 1816, Britain adopted the gold standard, where currency was legally backed by a fixed quantity of gold. - Governments would issue coins or print paper notes that were technically exchangeable for their value in gold from the national reserves. - For example, the U.S. once defined $20.67 as equivalent to 1 troy ounce of gold. -Citizens could exchange currency for actual gold bullion. - Other countries followed the gold standard system over the next century to facilitate international trade. 20th Century: - After World Wars caused economic turmoil, the Bretton Woods agreement in 1944 established the U.S. dollar as the global reserve currency, initially backed by gold. - By 1971, the U.S. abandoned the gold standard in favor of a fiat money system - currencies derive their value from the government decree (fiat) declaring them as legal tender, rather than being backed by a physical commodity like gold. - Most modern currencies today derive value via fiat, not commodity backing. key points about fiat money: 1. No essential Value: Fiat currencies have no intrinsic value themselves - they are essentially valueless pieces of paper or digital entries. Their worth comes from the faith and credit of the issuing government. 2. Unlimited Supply: With fiat money, governments can issue unlimited amounts of currency since it is not redeemable for any physical reserve. This gives more flexibility in monetary policy. 3. Managed Supply: Central banks attempt to control the supply and value of fiat currencies by adjusting monetary policies like interest rates, money supply, and foreign exchange operations. 4. Reserve Currency Basis: Major global currencies like the U.S. dollar have become reserve currencies that are widely accepted and traded internationally to facilitate transactions. 5. No Backing: Unlike precious metal or representative money, fiat money is not convertible or backed by any commodity. Its value depends solely on stability, economic productivity, and faith in the issuing authority. The modern system evolved from the Bretton Woods agreement established after World War II. It facilitates global trade, investment flows, currency convertibility and aims to maintain orderly exchange rate arrangements while allowing adjustments. What is a Global Economy? Ms. Jovy Cuadra LOGO The global economy refers to the increasing integration and interdependence of national economies around the world through cross-border movement of goods, services, capital, technology, and labor. Here are some key features of the global economy: International Trade: The exchange of products and services across international borders has increased significantly, facilitated by trade agreements, globalized supply chains, and reduced tariffs. Financial Integration: Capital markets have become globally linked, allowing free movement of investments and financial transactions across countries through instruments like stocks, bonds, currencies, and derivatives. Multinational Corporations: Large companies operate across multiple countries, locating production facilities, entering new markets, and sourcing labor and resources globally.  Labor Migration: Workers increasingly migrate across borders to find employment opportunities, creating a global labor market. Technology Transfer: Rapid spread of technology across borders through foreign direct investment, joint ventures, licensing, and communication networks. Economic Policies: Economies are influenced by international organizations like the World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank through negotiated policies and regulations. The global economy has been facilitated by advances in transportation, telecommunications, and policies favoring open markets, foreign direct investment, and free capital flows. However, it has also led to interdependence where events in one region can rapidly impact other economies worldwide.  Why is the global economy important?  Improved Efficiency and Productivity The free flow of goods, services, capital and labor across borders allows countries to specialize in areas where they have a comparative advantage. This raises productivity, lowers costs through economies of scale, and provides more choices for consumers globally. Economic Growth and Development An integrated global marketplace creates new opportunities for international trade, investment, and technology transfer. This stimulates economic growth, employment, income levels and overall development - especially in emerging economies that can tap into global value chains. Access to New Markets Companies can access billions of new consumers across the world. Global integration expands export opportunities and revenue sources beyond domestic markets.  Diffusion of Knowledge and Innovation Globalization facilitates the cross-border spread of information, skills, best practices, and technological innovations at a faster rate benefiting both corporations and societies. Better Allocation of Global Resources It enables countries to use their labor, land, capital and natural resources more efficiently by seeking out best-value global sources for production needs. Cross-Cultural Engagement. A global economy exposes diverse cultures to each other, promoting mutual understanding, creativity from different perspectives and people-to-people connections. In essence, participating in the global economic system, despite challenges, allows nations to drive economic progress, collaboration, and improved living standards in an interconnected world economy. Who controls the global economy?  Although governments do hold power over countries' economies, it is the big banks and large corporations that control and essentially fund these governments. This means that the global economy is dominated by large financial institutions.  Thank you and GOOD DAY!! Ms. Jovy Cuadra