TCW Group 3

Global Economic Order in the Early Years (DONE)

Economic Dimension of Globalization

 Economic globalization refers to the intensification and stretching of economic
connections across the globe.

Timeline of the World’s Economic History

 Prior to 3000 B.C - In prehistoric times, bartering was the main economic activity.
 650-600 B.C - The first metal coins appeared in Lydia (Turkey).
 618-907 - China prints the first paper money.
 1492 - Christopher Columbus makes it to America, flooding Europe with precious
metals.
 1602 - The Dutch East India Company becomes the first formally public traded
company.
 1683 - The Bank of Amsterdam issues the first fiat money (a legal-tender paper money
or coins that have face values far exceeding their commodity values and are not
redeemable in gold or silver) in Europe.
 1723 -Adam Smith, considered as the father of economics, is born.
 1792 - The U.S. Dollar was born.
 1821 - Gold Standard (the system by which the value of a currency was defined in terms
of gold, for which the currency could be exchanged) is established.
 1920 - During the short depression that lasted from 1920 to 1921, known as the
Forgotten Depression, the U.S. stock market fell by nearly 50%.
 1929 - The Great Depression (refers to the greatest and longest economic recession in
modern world history) started and ended in 1941.
 1948 - The “Marshall Plan”(a U.S.-sponsored program designed to rehabilitate the
economies of 17 western and southern European countries in order to create stable
conditions in which democratic institutions could survive in the aftermath of World War
II.) is enacted.
 1950 - Diners Club created the first general purpose card.
 1971 - U.S. dollar loses its direct convertibility to gold.
 1973 - OPEC Oil embargo (Arab members of the Organization of Petroleum Exporting
Countries (OPEC) imposed an embargo against the United States).
Emergence of the New Global Economic Order

What is a worldwide economy?

The worldwide economy alludes to the interconnected overall monetary exercises that
happen between different nations. These monetary exercises can adversely affect the nations in
question.

The worldwide economy involves a few attributes, for example,

 Globalization- Globalization depicts a cycle by which public and provincial economies,

social orders, and societies have become coordinated through the worldwide
organization of exchange, correspondence, migration, and transportation. These
improvements prompted the approach of the worldwide economy. Because of the
worldwide economy and globalization, homegrown economies have become firm,
prompting an improvement in their exhibitions.
 Worldwide exchange- Global exchange is viewed as an effect of globalization. It
alludes to the trading of labor and products between various nations, and it has
additionally assisted nations with spending significant time in items which they enjoy a
relative benefit in. This is a monetary hypothesis that alludes to an economy's capacity
to deliver labor and products at a lower opportunity cost than its exchange accomplices.
 Worldwide money: Cash can be moved at a quicker rate between nations contrasted
with merchandise, administrations, and individuals; making global money one of the
essential elements of a worldwide economy. Worldwide money comprises themes like
cash trade rates and financial approach.
 Worldwide speculation: This alludes to a venture procedure that isn't obliged by
topographical limits. Worldwide speculation primarily happens by means of unfamiliar
direct venture Foreign Direct Investment (FDI).

Why is the global economy important?

We can understand the importance of the global economy by looking at it in relation to
emerging markets:

(Question 1: What is the relation of global economy when it turns to globalization?)

Why is the global economy important?

 Economic importance at a micro and macro level: The increase in the world’s
population has led to emerging markets growing economically, making them one of the
primary engines of world economic growth. The growth and resilience shown by
emerging markets is a good sign for the world economy. Before delving into the next
point, you need to understand the concept of microeconomics. It refers to the study of
the behavior of households, individuals, and firms with respect to the allocation of
resources and decision-making. In simpler terms, this branch of economics studies how
 people make decisions, what factors affect their decisions, and how these decisions
affect the price, demand, and supply of goods in the market. Therefore, from the
perspective of microeconomics, some of the largest firms with high market value and a
few of the richest individuals in the world hail from these emerging markets, which has
helped in the higher distribution of income in these countries. However, many of these
emerging countries are still plagued by poverty, and work still needs to be done to work
towards eradicating it.

 Long-term world economic outlook: According to financial and economic projections

based on demographic trends and capital productivity models, the GDP in emerging
market economies in 2019 are likely to keep increasing at a positive rate. According to
an emerging markets economic forecast for 2019 conducted by Focus Economics, the
economy is set to increase by 7.5% in India, 6.6% in Philippines, 6.3% in China, 5.3% in
Indonesia, 5.1% in Egypt, 4.9% in Malaysia, 3.8% in Peru and 3.7% in Morocco.

Who controls the global economy?

Many people think that the global economy is controlled by governments of the largest
economies in the world, but this is a common misconception. 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. According to world economic news, US banks participate in many
traditional government businesses like power production, oil refining and distribution, and also
the operating of public assets such as airports and train stations.

How does the global economy work?

The functioning of the global economy can be explained through one word —
transactions. International transactions taking place between top economies in the world help in
the continuance of the global economy. These transactions mainly comprise trade taking place
between different countries. International trade includes the exchange of a variety of products
between countries. It ranges all the way from fruits and foods, to natural oil and weapons. Such
transactions have a number of benefits including:
 Providing a foundation for worldwide economic growth, with the international economy
set to grow by 4% in 2019 (source: World Trade Organization);
 Encouraging competitiveness between countries in various markets;
 Raising productivity and efficiency across countries;
 Helping in the development of underdeveloped countries by allowing them to import
capital goods (machinery and industrial raw materials) and export primary goods (natural
resources and raw materials).

What are the impacts of the worldwide economy?

 Practically every country on the planet is somehow or another impacted by things that
occur in what might appear now and again, as irrelevant nations - because of the impact of the
worldwide economy. A genuine illustration of this is the financial effect that the Brexit vote will
have different nations, in Europe, yet across the globe. Brexit was a mandate choice for the
Assembled Realm to pull out from the European Association (EU).

The primary driver of these impacts is financial aspects — in light of the creation and
trade of labor and products. Limitations on the import and commodity of labor and products
might possibly hamper the financial security of nations who decide to force too much.

The motivation behind worldwide exchange is like that of exchanging inside a country.
Notwithstanding, worldwide exchange varies from homegrown exchange two viewpoints:
 The monetary standards of no less than two nations are associated with
worldwide exchange, so they should be traded before labor and products can be
sent out or imported;
 Periodically, nations uphold hindrances on the global exchange of specific labor
and products which can upset the relations between two nations.
Nations normally represent considerable authority in those items that they can deliver
productively, which helps in decreasing in general assembling costs. Then, at that point, nations
exchange these items with different nations, whose item specialization is something different out
and out. Having more noteworthy specialization assists nations with exploiting economies of
scale. Economies of scale allude to the proportionate saving in costs acquired by an expanded
degree of creation. Makers in these nations can zero in on the entirety of their endeavors on
building plants for specific creation, rather than spending extra cash on the development of
different kinds of merchandise.

Sometimes nations add hindrances to worldwide exchange. A portion of these

boundaries incorporate exchange duties (charges on imports) and exchange shares (restriction
on the quantity of items that can be brought into a country). Exchange obstructions frequently
influence the economies of the exchanging nations, and over the long haul, it becomes hard to
continue to utilize such hindrances.

What are the advantages of the worldwide economy?

There are various advantages of a worldwide economy, which include:

 Deregulation: Streamlined commerce is a phenomenal technique for nations to trade

labor and products. It additionally permits nations to spend significant time in the
creation of those merchandise in which they enjoy a similar benefit.
 Development of work: Expanded relocation of the workforce is invaluable for the
beneficiary country as well concerning the laborers. On the off chance that a nation is
going through a period of high joblessness, laborers can search for occupations in
different nations. This likewise helps in diminishing topographical disparity.
 Expanded economies of scale: The specialization of merchandise creation in many
nations has prompted profitable financial factors, for example, below expenses and
lower costs for clients.
 Expanded speculation: Because of the presence of the worldwide economy, it has
become simpler for nations to draw in the present moment and long haul ventures.
Interests in non-industrial nations go far in working on their economies.
Factors affecting global economy
According to the latest economic news, here are some of the key factors that influence
and affect how well the global economy works:

 Natural resources
 Infrastructure
 Population
 Labor
 Human capital
 Technology
 Law

Philippines in a fragmenting global economic order?

(Question 2: Anong epekto ng pagiging import dependent at export oriented sa pagtatayo ng national
industries sa Pilipinas?)

(na iinterupt yung national industries sa Pilipinas kaya napipigilan yung paglago
ng mga national industries in return lalong pinapapasok foreign direct investment
(FDI) Mas mura pa yung international trade or yung product ng ibang bansa
kaysa pilipinas. Example nito yung magsasaka. FIA kaya mas lalong na. Isa sa
mga manipestasyon na lalong nagpapalubog sa national industries gawa ng
pagiging important dependent and export oriented ay ang mga pinapasang batas
halimbawa ang foreign investment act na kung saan pinapayagan ang mga
dayuhan na magkaroon ng 100% ownership sa Pilipinas. Kung susuriin, ang
implikasyon nito ay lalong maalitala ang pagpapatayo ng mga national industries
at lalong nagiging atrasado ang pamumuhay ng mga magsasaka, manggagawa,
dahil ang mga produkto ay inilalabas sa bansa imbis na gamitin sa pagpapayabong
ng industriya sa bansa, kasabay nito ay ang pananatiling dependent sa export
products na ipinagbibili sa mas mahal na halaga ng mga malalaking kapitalista.
Makikita rito na ang Global Economy ay hindi lamang naaapektuhan ang daloy
ng kapital at produkto kundi maging ang sistema ng pagpapatakbo ng gobyerno.
Katulad ng nabanggit na batas na mas pinapaigting nito ang pagpapalago ng mga
malalaking dayuhang kapitalista kaysa sa pagpapayabong at pagpapatayo ng mga
local na industriya.)

1. "Returning to ordinary" is the mantra of Philippine authorities who look for

a re-visitation of the pre-Coronavirus monetary circumstance. Returning to ordinary
means returning to the previous economy.

Is this conceivable? The Coronavirus pandemic has profoundly impacted how business
is coordinated and the way work is done in the Philippines and all over the planet. Simply
google the vast changes and changes being made by every one of the financial entertainers,
from the café business to the aeronautics business. Regardless of whether an antibody is
effectively evolved before very long, these changes and changes are probably going to remain.

In this association, a significant strategy challenge confronting the Philippines is the

manner by which to acclimate to a worldwide financial request that has drastically changed in
the radiance of the pandemic and other worldwide "disturbances." As framed by Joined
Countries Gathering on Exchange and Advancement (Unctad)in its Reality Venture Report
2020, the Coronavirus set off monetary emergency shows up on top of three significant
improvements dividing the pre-Coronavirus worldwide creation framework.

The main troublesome advancement is the "New Modern Insurgency" (NIR), which is
named by the Davos summiteers as the "Fourth Modern Upheaval" or FIR. Significant
innovation patterns, for example, mechanical technology empowered computerization,
upgraded production network digitalization and 3D or added substance fabricating empower the
worldwide organizations to re-plan work processes in an adaptable way and limit any type of
worldwide reevaluating. Subsequently the peculiarity of "re-shoring," meaning the MNCs are
taking back to their nations of origin the gathering and subordinate work they have moved to
different nations. Processing plant Asia, which alludes to the creation of various parts and parts
reevaluated by the MNCs to various Asian makers and constructing agents, is currently dividing.

The second problematic advancement is the "developing financial patriotism" or

exchange protectionism among the created nations. This is outlined by the extending exchange
clashes among US and China and the quiet (albeit generally unreported) exchange clashes
among Japan and South Korea.
The third turn of events — "imperative of manageability" — is likewise problematic in
light of the fact that it powers nations to change modern creation processes on the side of the
worldwide fight against an Earth-wide temperature boost. Care for the climate can prompt
occupation dislodging course of action, for instance, electric vehicle creation has an
exceptionally lean robotized set-up contrasted with the conventional vehicle gathering that
utilizes huge numbers of laborers.

The Coronavirus pandemic has built up the previous patterns. For instance, the
contention for the decrease of worldwide creation reevaluating now incorporates the need to
stay away from the spread of the infection.

As to monetary protectionism, lawmakers in the created nations feel free to decide what
their needs are in emergency times — public interests first, positions for residents first. Along
these lines in the US, Donald Trump's "America First" has now become a contender program in
Joe Biden's "Make in America" financial plan. This implies the US-China exchange war is
probably going to go on under a Biden administration. Two significant objectives in "Make in
America" program are to bring back basic stockpile chains that are not subject to China and to
give American makers and laborers motivating forces to empower them to rival Asian makers
for common blue collar positions.

Concerning the ecological issue, the quarantine reaction of most legislatures has
amazed the hippies. Air has become cleaner in light of the restriction on transport vehicles.
Notwithstanding, the endeavors of states and common society associations to decrease GHG
outflows are proceeding. This implies proceeding with endeavors too to re-engineer modern
plants to make them "green" or "greener."
So how should the Philippines respond? Quo vadis?

The reaction of the approach creators to the divided and smoothed worldwide creation
framework is indistinct. Notwithstanding, the work of certain officials and monetary chiefs to
push the Make bill bringing down corporate personal duty as a really important bill to draw in
FDI demonstrates an unfortunate perusing of the worldwide financial circumstance. The Division
of Exchange and Industry ought to request its Agency from Worldwide Exchange Relations and
the Philippine Diplomat allocated to the World Exchange Association (WTO) base camp in
Geneva to givew the work space a thorough appraisal of the changing worldwide economy and
its suggestions on the Philippines.

Such an evaluation ought to go past the Unctad examination, which is centered chiefly
around the disintegrating worldwide worth chain or worldwide creation framework. Why, for
example, are the WTO rules being overlooked by the US and different nations? For agricultural
nations, the WTO's walking request is to change exchange and venture systems, but, for the
created nations, the WTO's stance is typically one of quiet passive consent to the latter's rough
way of behaving.

The fact is that we truly can't return to the "old typical" or the prior approaches to
carrying on with work. For all intents and purposes, driving market analysts like Joseph Stiglitz,
Dani Rodrik, Nouriel Roubini, etc have all been announcing that the world has now entered
another period: a post-neo-liberal financial request. The "Washington Agreement" worked
around the precepts of privatization, financial liberation and venture/exchange progression
(interpreted by the IMF-WB into "underlying change program" or SAP) has been overturned by
the "Beijing Agreement," which advances homegrown and send out development with an
extremely amazing and noticeable help from the public authority (and the Chinese Socialist
Faction).

Is it not time for the Philippines to re-plan its monetary relations with the rest of the world
in light of new and arising real factors, not on the old paper presumptions being made by neo-
liberal market analysts who continue to dream of a borderless, consistent and decides liberated
world economy that doesn't exist? Is it not time for the new authority of Neda to officially cover
the SAP program, set up for north of forty years, for the program is an unadulterated
disappointment in the conveyance of occupations and government assistance for the Filipino
masses?

References:
 https://businessmirror.com.ph/2020/08/20/quo-vadis-philippines-in-a-fragmenting-global-
economic-order/
 https://www.edology.com/blog/accounting-finance/how-does-global-economy-work/

International Trade and Globalization

International Trade is the process and system by which goods, commodities, and services
cross national economies and borders in exchange for foreign currency or items.
 2 types of Trade Theories
1. Descriptive theory- it deals with the natural order and the movement of trade. It describes
the pattern of trade under the idea of “Leave alone”. Individuals are the ones who manage
to solve the problem rather than the government policies. It also determines how much the
product to offer and produce, which country to trade in the absence of the government
restrictions.
2. Prescriptive theory- It prescribes whether the government, economic institution, should
interfere and restrict the movement of goods and services. It is where the government
decides which countries to alter the amount, composition, and direction of goods.

3 Perspective on International Trade

1. Economic Liberals - it explains the importance of free trade and the role of individual’s
preference in choosing economic activity.

1. Mercantilists - Mercantilism is an economic theory emerged from about 1500-1800. This

system flourished because of the following reasons:
 Higher export than import.
 Export less high valued products and import less high valued products.
 It is adopted to increase and sustain the colonial power and its authority to direct and
control the economic activity of the colony.

1. Structuralists - The Modern World System (MWS) theory developed by Immanuel and
Wallerstein, explains the contact of economies between core, semi peripheral, and
peripheral countries in the world.

Why Do Countries Engage in International Trade?

 Use of Excess Capacity in Demand - To expand their market base outside the national
territory.
 Cost reduction and increase of Profit - Reducing cost and production while increasing
its market in global rather than domestic.
 Cheaper Supply - a country imports goods from other countries because of inexpensive
raw materials and supplies used for production.
 Addiction to Product Line - Economies usually aim for a variety of products and
services available in the market. It offers consumers to choose and buy products that are
competitive prices, degree, importance, and will offer higher satisfaction.
 Reduction of Risk - Importing products is seen as an alternative to countries especially
to those countries who are suffering with the shortage of product.
 Foreign Policy Tool- enhancing the economic and political affiliation of a country is very
important in sustaining international status in a global market.

International Finance and Globalization (DONE)

Concept of International Finance
- International finance is known as international macroeconomics, is the study of monetary
interactions between two or more countries, with particular emphasis on foreign direct
investment (FDI) and currency exchange rates.
- International finance exists because the presence of nations has an impact on the economic
activity of corporations, governments, and organizations. It is widely known that countries
constantly borrow and lend money to one another. Many countries utilize their own currencies in
 such transactions. As a result, we must comprehend how the currencies compare to one
another.
- One of the most important determinants in the growth and prosperity of participating economies
is international commerce. Globalization has increased its significance numerous times.
Furthermore, the United States' transformation from the world's largest creditor to the world's
largest debtor is a significant issue. These concerns are under the area of international
macroeconomics, sometimes known as international finance.

Importance of International Finance

1. International finance is a useful tool for determining exchange rates, comparing inflation
rates, deciding whether to invest in international debt securities, determining the
economic status of other countries, and judging foreign markets.
2. Utilizing International Finance Reporting Statements (IFRS)
3. Globalization has increased the importance of international finance. It aids in
understanding the fundamentals of all international organizations and maintains their
balance.
4. The international financial system keeps the world at peace. Without a reliable financial
system, all nations would act in their own self-interest. International finance contributes
to keeping that problem at bay.

International finance analyzes the following specific areas of study:

1. The Mundell-Fleming Model - the interaction between the goods market and the
money market.
2. International Fisher Effect - international finance theory that assumes nominal interest
rates mirror fluctuations in the spot exchange rate between nations.
3. The optimum currency area theory - states that certain geographical regions would
maximize economic efficiency if the entire area adopted a single currency.
4. Purchasing power parity - is the measurement of prices in different areas using a
specific good or a specific set of goods to compare the absolute purchasing power
between different currencies.
5. Interest rate parity - describes an equilibrium state in which investors are indifferent to
interest rates attached to bank deposits in two separate countries.

Financial Globalization

1. Advancement in information and communication technologies − Technological

advancements have made market players and governments far more efficient in
collecting the information needed to manage financial risks.
2. Globalization of national economies − Economic globalization has made production,
consumption, and investments dispersed over various geographic locations. As barriers
to international trade have been lowered, international flows of goods and services have
dramatically increased.
3. Liberalization of national financial and capital markets − Liberalization and fast
improvements in IT and the globalization of national economies have resulted in highly
spread financial innovations. It has increased the growth of international capital
movements.
 4. Competition among intermediary services providers − Competition has increased
manifold due to technological advancements and financial liberalization. A new class of
nonbank financial entities, including institutional investors, have also emerged.

Resources:
https://www.tutorialspoint.com/international_finance/interest_rate_parity_model.htm
https://www.investopedia.com/terms/i/international-finance.asp#:~:text=International%20finance
%2C%20sometimes%20known%20as,investment%20and%20currency%20exchange%20rates.
https://www.imf.org/external/pubs/nft/op/220/index.htm

International Monetary System (DONE)

1. Pre–World War I (Gold Standard)

Ancient societies began to use gold as a medium of economic exchange. As more
countries embraced gold, usually in the form of coins or bullion, the gold standard became
known as the international monetary system. This system arose gradually, lacking the structural
mechanisms found in more modern systems. In essence, the gold standard established a fixed
exchange rate mechanism. A currency exchange rate is the price of one currency in terms of
another. Each country in the gold standard system sets the price of its currency in relation to
gold, precisely one ounce of gold. A fixed exchange rate stabilizes the value of one currency in
relation to another and facilitates trade and investment.
£4.247 = 1 ounce of gold = $20.67.

The exchange rate between the US dollar and the British pound was then calculated by

$20.67/£4.247 = $4.867 to £1.

 The Advantages of the Gold Standard

 It provided fixed exchange prices between currencies, the gold standard significantly
decreased exchange rate risk.
 Governments were forced to adhere to stringent monetary regulations.
 The gold standard would assist a country in correcting its trade imbalance.

 Collapse of the Gold Standard

 The impact of World War I eventually brought the gold standard to an end.
  The gold standard's rebirth was short-lived due to the Great Depression, which began in
the late 1920s.
 By 1931, the United Kingdom had to formally relinquish its vow to keep the British
pound's value stable.

1. Post–World War II (Bretton Woods system)

The fall of the gold standard and the establishment of the Bretton Woods system
anchored to the US dollar reflected changes in world history and politics. The dominance of the
British Empire was fading. The United Kingdom had expanded its empire in the early 1800s,
thanks to the strength of its currency and trading power. The British Empire extended more than
a quarter of the world at the end of World War I; the common opinion was that "the sun would
never set on the British empire." British maps and globes of the time showed the empire's
expanse proudly painted in red.

The United States and the United Kingdom initiated discussions in the early 1940s to
create a new worldwide monetary system. The creation of a new monetary system was
facilitated by John Maynard Keynes, a very famous British economist, and Harry Dexter White,
a US Treasury official. Representatives from forty-four countries gathered in Bretton Woods,
New Hampshire, in July 1944 to build a new international monetary system.
 Fixed Exchange Rates

Pegged rates are another term for fixed exchange rates. After the United Kingdom
abandoned its commitment to sustaining the value of the British pound, countries sought to peg
their currencies to the US dollar. The gold supply in the United States increased as the US
economy grew stronger, but many countries had less gold in reserve than they did currency in
circulation. The Bretton Woods system attempted to address this by not only linking the value of
the US currency to gold, but also attaching all other countries to the US dollar rather than
directly to gold.

 National Flexibility

The Bretton Woods Agreement allowed countries to devalue their currencies by more
than 10% if necessary to deal with transitory but severe downturns. Countries could not utilize
this technology to manipulate imports and exports competitively. Rather, the instrument was
designed to avoid the large-scale economic depression that occurred in the 1930s.

 Creation of the International Monetary Fund and the World Bank

In essence, the IMF's initial primary mission was to help manage the fixed-rate exchange
system; it later expanded to help governments repair transitory trade imbalances (usually
deficits) with loans. The World Bank's mission was to aid in post–World War II European
reconstruction. Both institutions continue to play these duties but have expanded into larger
institutions that serve critical global goals, despite the fact that the system that established them
is no longer in place.
  Collapse of Bretton Wood
 The US trade balance has shifted to a deficit as Americans imported more than they
exported.
 The Triffin Paradox was exacerbated by the costs of the Vietnam War and an increase in
domestic spending.
 The Nixon Shock was a sequence of economic actions made by US President Richard
Nixon in 1971 that led to the Bretton Woods system's downfall.
 Later that year, the Smithsonian Agreement was struck, which depreciated the US dollar
to $38 per ounce of gold, increased the value of other countries' currencies to the dollar,
and enlarged the band within which a currency was allowed to float from 1% to 2.25 %.

 Post–Bretton Woods Systems and Subsequent Exchange Rate Efforts

When Bretton Woods was formed, one of the key architects, John Maynard Keynes,
recommended developing an international currency called Bancor as the primary clearing
currency. The Americans, on the other hand, had an alternate plan for the development of a
central currency known as unitas. Neither gained traction; the US dollar remained the reserve
currency. Many governments and organizations keep reserve money as part of their foreign
exchange reserves. Reserve currencies are frequently used as worldwide pricing currencies for
global goods and services. Current reserve currencies include the US dollar, euro, British
pound, Swiss franc, and Japanese yen.

1. Jamaica Agreement (The Gs Begin)

Countries gathered in 1976 to define a floating exchange rate system as the future
international monetary system. The Jamaica Agreement established a managed float exchange
rate system in which currencies float against one another and governments intervene solely to
stabilize their currencies at predetermined target exchange rates. In contrast, a truly free floating
exchange rate system with no government interference allows currencies to float freely against
one another. The Jamaica Agreement also abolished gold as the IMF's key reserve asset.
Furthermore, the IMF's mission was enlarged to include providing money as a last option to
nations facing balance-of-payment problems.

The value of the US dollar soared in the early 1980s, raising the prices of US exports
and thus increasing the trade deficit. Five of the world's top economies convened in September
1985 to find a solution to the imbalances. The five countries were the United Kingdom, France,
Germany, Japan, and the United States; this group became known as the Group of Five,
abbreviated as G5. The Plaza Accord, named after the Plaza Hotel in New York City, was
signed in 1985 with the goal of collectively lowering the value of the US dollar.

 Today’s Exchange Rate Systems

 While there is no official replacement for the Bretton Woods system, arrangements are
in place through continuous G20 forum negotiations. Today's economy is still largely a
controlled float system, with the US dollar and the euro competing for supremacy as the world's
reserve currencies. Pricing is now routinely mentioned in euros for organizations that used to
quote predominantly in US dollars.
Some smaller countries have chosen to set their own currency rates against the dollar,
while others have chosen the euro. Typically, a country chooses between the dollar and the
euro by examining its main trading partners. Countries want currency stability and lower inflation
by using the euro or the dollar, among other purported benefits. Many Latin American countries
were originally dollarized in order to guarantee monetary stability for their economies. This is
changing as individual economies have become stronger and countries attempt to de-dollarize.
Links:
https://www.elibrary.imf.org/view/books/071/14902-9781451947830-en/ch02.xml
https://saylordotorg.github.io/text_international-business/s10-01-what-is-the-international-
mone.html

International Economic Institutions (DONE)

World Trade Organization

WTO was formed in 1995 to replace the General Agreement on Tariffs and Trade (GATT),
which was started in 1948. GATT was replaced by WTO because GATT was biased in favor of
developed countries. WTO was formed as a global international organization dealing with the
rules of international trade among countries.
The main objective of WTO is to help the global organizations to conduct their businesses.
WTO, headquartered at Geneva, Switzerland, consists of 153 members and represents more
than 97% of world’s trade.
The main objectives of WTO are as follows:
A. Raising the standard of living of people, promoting full employment, expanding
production and trade, and utilizing the world’s resources optimally
B. Ensuring that developing and less developed countries have better share of growth in
the world trade
C. Introducing sustainable development in which balanced growth of trade and environment
goes together

International Monetary Fund

IMF, established in 1945, consists of 187 member countries. It works to secure financial
stability, develop global monetary cooperation, facilitate international trade, and reduce poverty
and maintain sustainable economic growth around the world. Its headquarters are in
Washington, D.C., United States.
The objectives of IMF are as follows:

A. Helping in increasing employment and real income of people

B. Solving the international monetary problems that distort the economic development of
different nations
 C. Maintaining stability in the international exchange rates
D. Strengthening the economic integrity of the nations
E. Providing funds to the member nations as and when required
F. Monitoring the financial and economic policies of member nations
G. Assisting low developed countries in effectively managing their economies

World Bank

With 189 member countries, staff from more than 170 countries, and offices in over 130
locations, the World Bank Group is a unique global partnership: five institutions working for
sustainable solutions that reduce poverty and build shared prosperity in developing countries.
The World Bank Group is one of the world’s largest sources of funding and knowledge for
developing countries. Its five institutions share a commitment to reducing poverty, increasing
shared prosperity, and promoting sustainable development.
The five institutions working with World Bank are The International Bank for Reconstruction and
Development (IBRD), The International Development Association (IDA), The International
Finance Corporation (IFC), The Multilateral Investment Guarantee Agency (MIGA), and The
International Centre for Settlement of Investment Disputes (ICSID).

Global Economic Instability (DONE)

The typical workings of the economy are disrupted by economic volatility. Instability
lowers confidence, which leads to reduced investment, spending, growth, and unemployment.

Businesses may compete without suffering from monopolistic effects, and average family
incomes are sufficient to fulfill residents' demands. The majority of individuals can afford a few
frills. When an economy becomes unstable, however, prices rise, customers lose confidence,
and individuals struggle to make ends meet. What may be causing this?

When the elements that impact an economy are out of balance, economic instability
arises. Inflation, or a reduction in the value of money, occurs when an economy becomes
unstable. This results in increased pricing, greater unemployment rates, and widespread
anxiety among consumers and companies struggling to make ends meet. To put it another way,
people are unhappy. They don't invest any longer, and they can't afford to buy much. As a
result, the economy slows even further.
Pwede nating isipin na ang isang economy ay isang tao na kinailangan panatilihin na maging
malusog at malakas. Katulad ng isang tao na kapag ito ay nakaramdam ng gutom, ito ay
manghihina at katulad ng tao ang ekonomiya ay rumorosponde sa panloob at panlabas na mga
kundisyon.

Economic instability can result from a variety of factors.

 Price fluctuations in commodities

 Interest rates fluctuate
 Changes in confidence
 The stock market plummets
 Black swan situations or unpredictable situations.

There are also causes of Economic Instability

1. Changes in house price or assets.

 Because of the reduction in value, consumers may find themselves owing more on their
mortgage debt than the house is worth when home values decline. They may fail on
their debts and cut back on their spending. The economy becomes unstable as banks
lose money.
1. Fluctuations in Stock Markets
 When the stock market's share values fall unexpectedly or sharply, it can undermine
consumer confidence, resulting in economic instability. People may decide to invest
less, sell their investments, and purchase fewer items.

1. Global Credit Markets

 This resulted in a significant drop in lending confidence. This credit shortfall resulted in a
credit scarcity. This exacerbated Northern Rock's troubles and lowered customer
trust.
1. Changes in Interest Rates
 Interest rates are occasionally used by governments to manage inflation through the
Federal Reserve. When the rate of inflation rises, it becomes more expensive for the
typical individual to borrow money, which reduces consumption and causes prices to
fall. Inflation is therefore slowed.
1. Global Factors
 The international economies are becoming increasingly interdependent in the age of
globalization.
1. Government Debt Crisis
 Bonds will be sold if markets believe government debt is unsustainable or likely to
encounter liquidity difficulties. Bond yields will likely rise as a result of this. This raises
interest payments on government debt, putting pressure on the government to
decrease spending and lower the budget deficit. This can lead to a downward loop of
decreasing growth and tax revenue.
1. Black swan events
  Unexpected incidents known as black swans can destabilize the economy. They have a
very low likelihood in principle, yet they have happened at inconvenient times
throughout history.
1. Erratic leadership
 Instability can result from unstable political leaders.

The greatest example of Global Economic Instability is the COVID-19 Pandemic which began in
2019.

Resources:

https://www.economicshelp.org/blog/43/economics/causes-of-economic-instability/
#:~:text=Economic%20instability%20involves%20a%20shock,e.g.%201974%20oil%20price
%20shock)

https://study.com/academy/lesson/economic-instability-definition-examples.html#:~:text=Other
%20times%20of%20great%20economic,drastically%20while%20supply%20remains%20low.

Global North and South Divide (DONE)

What is the North-South Divide?
The North-South Divide is a socio-economic and political categorization of countries. The Cold
War era generalization places countries in two distinct groups; the North and South. The North
is composed of all first world countries and most Second World countries while the South is
composed of Third world countries. This categorization ignores the geographic position of
countries with some countries in the Southern Hemisphere such as Australia and New Zealand
being labeled as part of the North.

Global North Global South

 United States, Canada, Western Europe, Outermost Regions of the Africa, Latin America
European Union Developed parts of Asia, New Zealand, and · Developing Asia,
Australia. including Middle East
Home to all G8 (France, Germany, Italy, United Kingdom, Japan,
United States, Canada, and Russia) and four of the five permanent
members of UN Security Council

Global North Global South

· First World · Third World

· Richer and More Developed Region · Poor and Less developed
· Has enough 95% of food and shelter Region
· Economy: Industries and Major businesses, Commerce and
· Has enough 5% of food and
Finance Shelter
· Textiles, lumber, and wooden goods · Source of Raw Materials of the
· Railroad Construction North
· Cotton production
· Depended entirely on cotton

Population

 The world total population is 7.7 billion

 The most populous country is China (1.398 million) and 2nd is India (1.311 Million)
 The Global North covers one-quarter of total population while the South covers three -
quarters of Total population.

Wealth

 The total wealth in the World is 280 trillion

 The Richest Man: Jeff Bezos with Net worth of 149. 5 billion USD
 The Richest Country in the World is Qatar $124,930 per capita. 2nd country Luxembourg
$109,190 per capita.
 The Global North is controlling the 80% total income of the world
 Inversely, the South only controls the 20% total income of the world.

Standard of Living
  South lacks the right technology, it is politically unstable, its economist is divided, and its
foreign exchange depend on primary products exports to the north
 About 95% of the population in countries in the North have enough basic needs and
have access to functioning education systems
 In the South, as little as 5% of the population can access basic needs such as food and
shelter.

Industrial Development

 The North of the Divide comprises countries which have developed economies and
account for over 90% of all manufacturing industries in the world.
 The economies of most countries in the South rely on imports from the North and have
low technological penetration.
 The South serves as the Raw Materials of the South.

Agriculture
· The Global South is characterized with a very high rate of people working in rural areas
and according to (Todaro, 2006) over 65% are rurally based, compared to less than 27% in the
Global North. Similarly, 58% of the labor force is engaged in agriculture, compared to only 50%
in Global North. Agriculture contributes about 14% of the GNI of Global South Nations but only
3% of the GNI of Global North. Todaro further argued that people in the Global South countries
concentrate on agricultural production because since their incomes are low, their first priorities
are food, clothing, and shelter and due to the primitive nature of technologies, poor organization,
and limited physical and human capital inputs.

What is Brandt Line?

It is a diversionary line which simply separates the rich countries in the North from the poor
countries in the South. It encircles the world at a latitude of 30 degrees. It crosses North and
Central America, North of Africa, and India, and then it goes down towards the South, placing
Australia and New Zealand above the line.
History of Divide
The idea of categorizing countries by their economic and developmental status began
during the Cold War with the classifications of East and West. The Soviet Union and China
represented the East, and the United States and their allies represented the West. The term
“Third World” was coined by states hoping to navigate between the two poles of the Cold War
and ultimately gave birth to the Non-Aligned Movement. These countries were generally less
economically developed than their first-and Second-World counterparts. As some Second World
countries joined the First World and others joined the Third World, a new and simpler
classification was needed. The First World became the “North”, and the Third World became the
“South”
Countries can be classified into three different types:

1. Most developed Countries (MDC)

2. Less Developed Countries (LDC)
3. Least Developed Countries (LLDC)

Reasons: There are three main reasons why our world is so unequal today.

 Colonialism
 Trade
 Debt

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