International Trade Evolution - IB PDF

UNIT 1: The Evolution of International Trade 2. The evolution of what is recognized as the Standard World Trade Organization (WTO) Theory of International Trade goes back to the years WTO is the only global international organization...

UNIT 1: The Evolution of International Trade 2. The evolution of what is recognized as the Standard World Trade Organization (WTO) Theory of International Trade goes back to the years WTO is the only global international organization when Adam Smith's Wealth of Nations (1776) and dealing with the rules of trade between nations. David Ricardo's Principles of Economics (1951) were The goal is to ensure that trade flows as smoothly, published. The theory is a classical, country-based predictably, and freely as possible and to help international trade theory that states that a country's producers of goods and services, exporters, and wealth is determined by its holdings of gold and silver. importers conduct their business. 3. Smith and Ricardo herald the formulation of a theory It functions primarily as the forum for trade of free trade. Free trade, as opposed to the negotiations between countries mercantilist policies of protection, was championed The primary purpose of the WTO is to open trade by both Smith and Ricardo as a route to achieve for the benefit of all. production efficiency at a global level. Roles of WTO 4. The possible dilemmas in terms of the need for 1. It operates a global system of trade rules. monetary adjustments for countries having a 2. It acts as a forum for negotiating trade agreements. continuous trade surplus could be shelved aside by 3. It settles trade disputes between its members. relying on the automatic adjustment as posited by 4. It supports the needs of developing countries. Smith's contemporary, David Hume (1776), when he General Agreement on Tariffs and Trade (GATT) offered the theory of the price-specie flow mechanism. WTO is the precursor of the GATT which was 5. Division of labor is the separation of a work process established by a multilateral treaty of 23 countries in into a number of tasks, with each task performed by a 1947 after World War II in the wake of other new separate person or group of persons to boost multilateral institutions dedicated to international productivity and efficiency and enhance specialization. economic cooperation such as the World Bank 6. Trade surplus is the amount by which the value of a (founded in 1944) and the International Monetary country's exports exceeds the cost of its imports. Fund (founded in 1944). 7. Industrial capitalism was the second phase of To ensure a good distribution of appointments, informal capitalism in which industries/ factories became the consultations are held to produce consensus on slates of dominant factor in the production of goods. chairpersons in three groups: 8. In a free trade system, individuals benefit from a 1. Those directly involving the General Council greater choice of affordable goods, while mercantilism (including the bodies reporting to the Trade restricts imports and reduces the choices available to Negotiations Committee); consumers. 2. Those reporting to the Goods Council; and 9. Absolute advantage is the country's inherent ability to 3. Those reporting to the Services Council. All major produce specific goods efficiently and effectively at a decisions are made by the WTO's member relatively lower marginal cost, lesser workforce, lesser governments: either by ministers (who usually meet time, and lesser cost without compromising the quality. at least every two years) or by their ambassadors or 10. Comparative advantage refers to the country's delegates (who meet regularly in Geneva). capability to produce the specific good at lower Ngozi Okonjo-Iweala marginal cost and opportunity cost compared to other Former finance minister of Nigeria and a former countries. World Bank senior executive of 25 years, leading to 11. Marginal cost is the cost incurred in producing an her appointment as the Director General of the WTO additional unit of a product. Opportunity cost means effective March 1, 2021. the value you will get from an alternative that you did She is the seventh director-general of the WTO not choose. becoming the first woman and the first African to 12. The Standard Theory of International Trade has serve as director-general. Her term of office will evolved into the Theory of International Trade and expire on August 31, 2025. Commercial Policy, still considered to be one of the LESSON 1.1 EVOLUTION OF INTERNATIONAL oldest branches of economic thought. From the ancient TRADE THEORY Greeks to the present, government officials, 1. The main historical theories are called classical and intellectuals, and economists have deliberated about the are from the perspective of a country, or country- determinants of international trade, have discussed based. By the mid-twentieth century, the theories began whether trade is beneficial or harmful to nations, and, to shift to explain trade from a firm, rather than a more importantly, have tried to determine what trade country-based, perspective; hence, referred to as policy is best for any particular country. modern and are firm-based or company-based.  LESSON 1.2: BARTER The first regular system of exchange in Canada involving 1. Bartering involves a direct trade/exchange of goods and Europeans occurred in Tadaoussac in the early seventeenth services. century, where French traders bartered each year with the 2. The advantage of bartering is that it does not involve Mantagnais people (also known as the Innu) trading money and it is very simple. weapons, cloth, food, silver items, and tobacco for animal 3. However, it is difficult to find people who need what the pelts especially those of the beaver. other people have and there is no standard measure of value. The first colonial settlement at Quebec was established by 4. Even today, there are swap markets, online auctions, and Samuel de Champlain in 1608. numerous websites that offer online bartering arrangements. The beaver pelt was the one universally accepted medium of 5. The early humans had very little needs and there was no exchange in Quebec, although wheat and moose skins were need for exchange of goods. also employed as legal 6. As the number of people increased, they started forming tender. As the colony expanded and its economic and groups and travelled long distances to find food. financial needs became more complex, coins from 7. Gradually, however, intergroup interaction started and this France came to be widely used. paved the way for a system of trading. Silver and copper coins, apparently intended only for the 8. As cultivation and farming flourished, there was no West Indies, was minted in 1670, believed to have circulated shortage of food. They started trading surplus goods and the in Canada, but could not be circulated in France. system of trade flourished. The West Indies are a chain of islands in the Caribbean Sea 9. The history of bartering can be traced back to 6000 BC, and Atlantic Ocean divided into three groups: The Bahamas, when the barter system was introduced by the tribes of the Greater Antilles, and the Lesser Antilles. Mesopotamia, then adopted by the Phoenicians, and During the mid-1600s, Spanish dollars (piastres) represent improved by the Babylonians. the first distinctive Canadian coins. 10. Salt was so valuable at that time that the salary of Roman The livre (French for "pound") was the currency of the soldiers was paid in salt. Kingdom of France and its predecessor state of West Francia LESSON 1.3: ORIGIN OF MONEY from 1781 to 1794. The first recognizable metal coins appeared in China, during In 1685, Jacques de Meulles, Intendant of.Justice, Police, 1000 BC. and Finance came up with the card money, which served as Sometimes around 770 BC, the small bronze celts money in Canada, just as coin did in France, but it was only in (prehistoric tools resembling chisels) and bronze rings played March 1729 that card money became legal tender and a monetary role. replaced the ordonnances in circulation. Objects in the shape of a circle became some of the first Legal tender means currency, such as coin and paper money, coins. is valid and sufficient for the payment of debts. Around 700 BC, the Chinese moved from coins to paper Inflation means increase in prices, reducing the purchasing money. power of money. The first mint, an industrial facility to manufacture coins, was In 1717, all debts and contract in Canada became payable in established in Lydia (now western Turkey). monnoye de France. Minting is the process of making a coin by stamping metal. Copper coins were introduced in 1722, but they were not well In 600 BC, around the time China started using paper money, received by merchants. Notes issued by private individuals Lydia's King Alyattes minted the first official currency, non- also circulated as money. standardized coins from electrum (a naturally occurring alloy The government issued promissory notes called ordonnances of gold and silver). (replaced later by card money) and treasury notes called King Croesus (son of King Alyattes) of Lydia is credited with acquits, which began to circulate as money. installing the world's first bimetallic monetary system of Bills of exchange drawn on the Treasury were used for pure gold and pure silver coins, the Croeseid (anciently payments of expenses in Canada. Kroiseioi stateres), around 550 BC. Settlement of the paper obligations issued by the colonial The foundation deposit of the Artemisium (temple to authorities in Canada was included in the Treaty of Paris, Artemis) at Ephesus shows that electrum (which the Greeks signed in February 1763, which ended the war between called "white gold") coins were in production even before Great Britain and France. Croesus, possibly under King Gyges. The advent of paper money led to an increase in The European colonial governments in North international trade. America issued the first paper currency in Canada LESSON 1.4: HISTORY OF PHILIPPINE (then a French colony). Instead of going back to a barter CURRENCY system, the colonial governments issued IOUs 1. Barter was the means of trade long before the (promissory notes) that traded as a currency. Spaniards came to the Philippines. However, the  inconvenience of the barter system led to the adoption Beginning May 1918, treasury certificates replaced the of a specific medium of exchange –the cowries, glossy, silver certificates series, and a one-peso note was often colorfully patterned shells. Cowries produced in added. gold, jade, quartz, and wood became the most common 9. Two kinds of notes circulated in the country during the and acceptable form of money through many centuries. outbreak of World War II. The Japanese Occupation 2. Barter rings made in gold were the first local form of Forces issued war notes in high denominations, which coinage called piloncitos. These had a fiat base that had no back up reserves; thus, Filipinos dubbed it bore an embossed inscription of the letters "MA" or "Mickey Mouse" money. Guerrilla notes or resistance "M," believed to be the name by which the currencies, in low denominations that were issued by Philippines was known to Chinese traders during the different provinces and municipalities, show resistance pre-Spanish time. against the Japanese occupation. 3. The Spaniards ruled the Philippines from 15211897 10. Having gained independence from the United States (over 300 years). The cobs or macuquinas (silver following the end of World War II, the country used as coins) of colonial mints were the earliest coins brought currency old treasury certificates overprinted with the in by the galleons from Mexico and other Spanish word "Victory." colonies. These silver coins usually bore a cross on one 11. With the establishment of the Central Bank of the side and the Spanish royal coat-of-arms on the other. Philippines in 1949, the first currencies issued were 4. The barrilla, a crude bronze or copper coin worth about the English series notes printed by the Thomas de la one centavo, was the first coin struck in the country Rue & Co., Ltd. in England and the coins minted at as ordered by the Royalty of Spain. The Filipino term the US Bureau of Mint. "barya," referring to small change, had its origin in 12. The "Filipinization" of the republic coins and notes barrilla. began in the late 60s and is carried through to the 5. Gold coins with the portrait of Queen Isabela were present. In the 70s, the Ang Bagong Lipunan (ABL) minted in Manila. Silver pesos with the profile of series notes printed at the Security young Alfonso XIII were the last coins minted in Printing Plant were circulated starting 1978. In Spain. The pesos fuertes, issued by the country's first 1983, the Flora and Fauna coin series was initially bank, the El Banco Español Filipino de Isabel II, issued. The New Design Series of banknotes issued were the first paper money circulated in the country. in 1985 replaced the ABL series. Ten years later, a 6. The Philippine Republic of 1898 under General new set of coins and notes were issued carrying the Emilio Aguinaldo issued its own coins and paper logo of the new Bangko Sentral ng Pilipinas. currency backed by the country's natural resources. At the Malolos arsenal, two types of two-centavo copper LESSON 1.5: MOBILE PAYMENTS AND INTERNET coins were struck. One-peso and five-peso PAYMENTS revolutionary notes printed as Republika Filipina 1. Mobile payments are money rendered for a product or Papel Moneda de Un Peso and Cinco Pesos were service through a portable electronic device, such as a cell freely circulated. phone, smartphone, or a tablet device. It can also be used 7. With the coming of the Americans in 1898, modern to send money to friends or family members. banking, currency and credit systems were instituted 2. Near field communication (NFC) payments is the making the Philippines one of the most prosperous technology that allows two devices-your phone and a countries in East Asia. The Americans instituted a payment's terminal-to process contactless payments using monetary system for the Philippine based on gold close-proximity radio frequency identification. (gold standard) and pegged the Philippine peso to the 3. Sound wave-based (SWB) or sound signal-based (SSB) American dollar at the ratio of 2:1, two pesos = one US mobile payments or pay-by-sound uses an advanced, dollar. The gold standard is a monetary system where ultra-low power, wireless transmission technology to a country's currency or paper money has a value transmit data via sound waves that originate from POS directly linked to gold; countries agreed to convert terminals. Any phone with a microphone can pick up those paper money into a fixed amount of gold per unit of waves to complete a transaction without the need for currency. internet. 8. The US Congress approved the Coinage Act for the Philippines in 1903. The coins issued under the system 4. Magnetic secure transmission (MST) is when a phone bore the designs of Filipino engraver and artist, emits a magnetic signal imitating the magnetic strip on the Melecio Figueroa. Coins in denomination of one-half payer's credit card, which the card terminal picks up and centavo to one peso were minted. The renaming of El processes as if a physical card was swiped through the Banco Español Filipino to Bank of the Philippine machine. MST is secure as it uses a secure tokenization Islands in 1912 paved the way for the use of English system. from Spanish in all notes and coins issued up to 1933. 5. A mobile/digital wallet stores payment information on a LESSON 1.6: VIRTUAL CURRENCY 1. mobile device, usually in an app that utilizes different Cryptocurrency, virtual/digital currency, technologies in the payment process. They commonly "digital gold", or "altcoins" are any type of digital work through complex encryption and tokenization, a unit that is used as a medium of exchange or a form method using time-limited token numbers generated to of digitally stored value generated by agreement process the specific transaction using your already- within the community of virtual currency users. encrypted card "stored" in your mobile wallet. 2. Fiat currency/fiat money or cash is the real 6. Quick response (QR) codes are the trademark of a type of currency, coins and paper money (bills) issued and printed by the central bank of a country. matrix barcode (type 2D barcode) readable by smartphones. This is more secure because your phone, that 3. E-money is a digital representation of fiat currency stored in digital wallets or e- wallets. your card details are securely connected to, confirms you 4. Virtual currency, which is stored digitally, would are the owner of the card. still need to be converted first to Philippine peso, 7. A QR code has four important advantages: then transferred to a destination wallet or be a. It stores a large volume of data. withdrawn as cash through different mediums that are b. It can be scanned from a screen, not just paper. accepted in the country done through a virtual c. It can be read even if part of the code is damaged. currency exchange. d. It is safer because information can be encrypted. 5. Cryptocurrencies work through blockchain 8. Short message (or messaging) service (SMS), also called technology. Blockchain is a special. kind of premium SMS payments, simply means paying for database, a "distributed ledger" or a "global ledger" products or services via a text message with the relevant built on a data structure known as “blocks”. information to the right payee phone number and the 6. Cryptocurrencies use electronic coins as their form of payment amount is added to your mobile phone bill. exchange, which are nothing more than slots in the 9. Direct carrier billing (DCB) is similar to SMS payments blockchain. because you pay through your mobile carrier instead of 7. Cryptocurrencies use cryptography, the process of using bank or card details, the payment will then be added protecting information by using codes, for security. to your phone bill or prepaid SIM card as with SMS 8. The more users a coin has, the more useful it payments. becomes, and the higher its price goes. But when a 10. Internet payments can be done on desktops, laptops, or coin falls out of favor, there is nothing to stop it from even phones (as in mobile payment) and can also be used going to zero. to send money to friends or family members. 9. China has already developed a Central Bankbacked crypto. 11. Wireless application protocol (WAP) payments used to be the most common facility on smartphones through a 10. The cryptocoin market is decentralized, but cryptocurrency exchange websites, are centralized. more limited-capacity WAP browser or app. 12. Most credit cards and bank accounts have what we call "auto pay," where payments to credit cards or other bills, like for water, electricity, or whatever bills need to be paid, are scheduled to be automatically paid on a certain date from funds of the payee with a certain bank. It can be the bank doing the auto pay or the credit card company. 13. Payment links or pay by link is most commonly referring to a button/link sent in an email, text message, messaging app, or over social media where a checkout page opens up in an internet browser where the recipient can enter their card details to process a transaction for a specified merchant. 14. Neobank literally means "new bank," and is from the Greek word neos meaning "new." It is an umbrella term for the new generation of cuttingedge, fully digital banking services. They all operate online or through apps; hence, they are classified as a type of financial technology (fintech) solution.