GINS 2010 Lecture Notes - Lecture 7: Panamanian Balboa, Ecuadorian Sucre, Russian Ruble
International Finance 1
Week 7 – Nov. 3rd
How does international trade relate to national accounts?
-People and firms in all countries trade domestically, and internationally
-Crucial distinction between domestic and international trade:
-domestically, trade is done in locally currency
-internationally, trade is done in foreign currencies
-Same applies to investments done internationally
-Foreign direct investments, financial investments (stock market, bonds, loans, etc.)
-In other words, trade (and investment) being not only our labour and business conditions together
internationally, but also our local currencies
-Local currencies matter because they are issued by national governments, usually following exclusively
national goals
-Providing sufficient currency to facilitate domestic transactions, savings/investments
-Financing government budget deficits (ie. Gov. prints money to pay its creditors/employees)
-Displace other forms of payment (servitude, traditional agreements, barter, etc.)
Ho does gloal eooi itegratio ifluee our oey’s orth?
-Some overly simple examples:
-If e osue oe ipoted tha atioally podued goods, ou outy’s ipots go.
-What happens to our currency vs foreign currencies?
-How will that matter to our national economy?
-If we prefer to consume more locally-produced goods that also others demand abroad, our exports
might decrease. If we continue to also consume the same amount of imported goods, what will happen
to our trade balance?
-How will that affect our currency? Will it appreciate or depreciate?
-How will that influence our domestic firms and jobs?
Currencies and national economies
-Not all ueies ae histoially ad uetly eual fo iteatioal tasatios…
-US dollar has been dominant since 1945
-Japanese Yen, Chinese Yuan and Euros have significant participation
-Other currencies have become increasingly irrelevant, such as UK Pound and Russian Ruble
-Many have disappeared (19 European currencies folded into the Euro) or exists only formally
(Panamanian Balboa, Ecuadorian Sucre)
-I ay deelopig outies, had ueies ae used fo lage tasatios, iestets
ad saigs. Natioal esees ae usually auulated i those had ueies.
-Still, local currencies matter at the national level because wages and other sources of income are
usually paid that way. Therefore, the levels of demand from the population are linked to the value of the
local money.
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Document Summary
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