International Trading System
“Economic globalization is a historical process representing the result of human innovation and technological progress”.
International Monetary Fund (IMF)
Economic Globalization – it is characterized by the increasing integration of economies around the world through the movement of goods, services, and capital across borders.
International Monetary Fund (IMF) – created in 1945.
⁃ Organization of 189 countries.
⁃ primary purpose is to ensure the stability of the international monetary system.
According to IMF – investment are moving all over the world.
According to United Nations Conference on Trade and Development (UNCTAD) the amount of foreign direct investments flowing across the world was US $57 billion in 1982, by 2015, that number was $175 trillion.
“Increased speed and frequency of trading”
⁃ super computers can execute millions of stocks purchases and sales between different cities in a matter of seconds through the process called “High Frequency Trading”.
International Trading Systems are not new.
Silk Road – is the oldest known international trade route.
⁃ a network of pathways in the ancient world that spanned from China to what is now the Middle East and to Europe.
⁃ was used regularly from 130 BCE until 1453 BCE.
“Globalization began when all important populated continents began to exchange products continuously— both with each other directly and indirectly via other continents— and in values sufficient to generate crucial impact on all trading partners” – Dennis D. Flynn and Arturo Giraldez (Historians).
Galleon Trade (1571) – connects Manila in the Philippines and Acapulo in Mexico.
⁃ 16th century to 18th century.
Monetary reserves – Europe competed to one another to sell more goods as a means to boost their country’s income.
Europe – imposed high tarrifs.
⁃ forbade colonies to trade with other nations.
⁃ restricted trade routes.
⁃ subsidized its exports.
1867 – more open trade system emerged.
United Kingdom, United States and other country adopted the “Gold Standard”.
Gold Standard – goal was to create a common system that allow for more efficient trade and prevent the isolationism of the mercantalist era.
⁃ very restrictive system, as it compelled countries to back their currencies with fixed gold reserves.
Great Depression – started during 1920s and extended up to 1930s.
⁃ Global economic crisis.
⁃ was the worst and longest recession ever experienced by the Western World.
Barry Eichengreen – Economic historian.
⁃ the recovery of the US began when having abandoned the Gold Standard.
Fiat Currencies – are not backed by precious metals and whose value is determined by their cost relative to other currencies.
⁃ allows Government to freely and actively manage their economies by increasing or decreasing the amount of money in circulation as they see fit.
Bretton Woods System – principal goals of creating an efficient foreign exchange system, preventing competitive devaluations of currencies, and promoting international economic growth.
IMF – The IMF promotes international monetary cooperation and provides policy advice and capacity development support to help countries build and maintain strong economies. The IMF also makes loans and helps countries design policy programs to solve balance of payments problems when sufficient financing on affordable terms cannot be obtained to meet net international payments.
World Bank – promotes long-term economic development and poverty reduction by providing technical and financial support to help countries reform certain sectors or implement specific projects—such as building schools and health centers, providing water and electricity, fighting disease, and protecting the environment
Neoliberalism – modified form of liberalism tending to favor “free-market” capitalism.
Keynesianism – Keynesian economics is a theory that says the government should increase demand to boost growth. Keynesians believe consumer demand is the primary driving force in an economy.
The Global Financial Crisis and the Challenge to Neoliberalism
Global Financial Crisis (2007-2008)
- most serious financial crisis since the Great Depression (1930)
- affects many countries
- severe crisis considered by many economist
- Father of economics
- The Theory of Moral Sentiments
- His work is the most systematic and comprehensive study of economics
- His economic thinking became the basis for classical economics
Free Market Economy – an economic system based on supply and demand, in which companies manage their own business, prices, profits, etc. without being controlled by government
Businesses are challenged to provide better quality products and services
Neoliberalism – modified form of liberalism tending to favor “free-market” capitalism
Came during the global financial crisis (2007-2008)
The CRISIS can be traced back to the 1980 when US removed various banking and investment restrictions
Cheap Housing Loans
- circulation of money was not controlled
- banks continue to give loans to people with dubious credit records
- starts of financial crisis
- selling houses with higher price, to get back their money
- house prices stopped increasing, as supply caught up with demand
Global Financial Crisis – worst economic disaster since the Great Depression of 1930s.
Export – send goods to another country
Past ( 65 percent global export )
Present ( 45 percent global export )
- United states
Past ( 29 percent global export )
Present ( 51 percent global export )
World Trade Organization – is an intergovernmental organization that is concerned with the regulation of international trade between nations.
- Tariff – are taxes that are imposed by the government on imported goods or services.
- Non Tariff – are barriers that restrict trade through measures other than the direct imposition of tariffs.
- Quotas – are restrictions that limit the quantity or monetary value of specific goods or services that can be imported over a certain period of time.
Trade Deficit – the amount by which the cost of a country’s imports exceeds the value of its exports.
“Race to the bottom” – refers to countries lowering their labor standards