Information and communications technology

From Wikipedia, the free encyclopedia

Information and communication technology (ICT) is another/extensional term for information technology (IT) that stresses the role of unified communications and the integration of telecommunications (telephone lines and wireless signals), computers as well as necessary enterprise software, middleware, storage, and audio-visual systems, which enable users to access, store, transmit, and manipulate information.

The term ICT is also used to refer to the convergence of audio-visual and telephone networks with computer networks through a single cabling or link system. There are large economic incentives (huge cost savings due to elimination of the telephone network) to merge the telephone network with the computer network system using a single unified system of cabling, signal distribution and management.

However, definition, as "the concepts, methods and a involved in ICT are constantly evolving on an almost daily basis." The broadness of ICT covers any product that will store, retrieve, manipulate, transmit or receive information electronically in a digital form, e.g. personal computers, digital television, email, robots. For clarity, Zuppo provided an ICT hierarchy where all levels of the hierarchy "contain some degree of commonality in that they are related to technologies that facilitate the transfer of information and various types of electronically mediated communications". Skills Framework for the Information Age is one of many models for describing and managing competencies for ICT professionals for the 21st century.

Etymology

The phrase "information and communication technologies" has been used by academic researchers since the 1980s, and the abbreviation ICT became popular after it was used in a report to the UK government by Dennis Stevenson in 1997, and in the revised National Curriculum for England, Wales and Northern Ireland in 2000. But in 2012, the Royal Society recommended that ICT should no longer be used in British schools "as it has attracted too many negative connotations", and with effect from 2014 the National Curriculum uses the word computing, which reflects the addition of computer programming into the curriculum.

Variations of the phrase have spread worldwide, with the United Nations creating a "United Nations Information and Communication Technologies Task Force" and an internal "Office of Information and Communications Technology".

Monetization

The money spent on IT worldwide has been most recently estimated as US $3.5 trillion and is currently growing at 5% per year, doubling every 15 years. The 2014 IT budget of US federal government is nearly $82 billion. IT costs, as a percentage of corporate revenue, have grown 50% since 2002, putting a strain on IT budgets. When looking at current companies' IT budgets, 75% are recurrent costs, used to "keep the lights on" in the IT department, and 25% are cost of new initiatives for technology development.

The average IT budget has the following breakdown:

• 31% personnel costs (internal)
• 29% software costs (external/purchasing category)
• 26% hardware costs (external/purchasing category)
• 14% costs of external service providers (external/services).

Technological capacity

The world's technological capacity to store information grew from 2.6 (optimally compressed) exabytes in 1986 to 15.8 in 1993, over 54.5 in 2000, and to 295 (optimally compressed) exabytes in 2007, and some 5 zettabytes in 2014. This is the informational equivalent to 1.25 stacks of CD-ROM from the earth to the moon in 2007, and the equivalent of 4,500 stacks of printed books from the earth to the sun in 2014. The world's technological capacity to receive information through one-way broadcast networks was 432 exabytes of (optimally compressed) information in 1986, 715 (optimally compressed) exabytes in 1993, 1.2 (optimally compressed) zettabytes in 2000, and 1.9 zettabytes in 2007. The world's effective capacity to exchange information through two-way telecommunication networks was 281 petabytes of (optimally compressed) information in 1986, 471 petabytes in 1993, 2.2 (optimally compressed) exabytes in 2000, 65 (optimally compressed) exabytes in 2007, and some 100 exabytes in 2014. The world's technological capacity to compute information with humanly guided general-purpose computers grew from 3.0 × 10^8 MIPS in 1986, to 6.4 x 10^12 MIPS in 2007.

ICT sector in the OECD

The following is a list of OECD countries by share of ICT sector in total value added in 2013.

Rank	Country	ICT sector in %	Relative size
1	Korea	10.7
2	Japan	7.02
3	Ireland	6.99
4	Sweden	6.82
5	Hungary	6.09
6	United States	5.89
7	Czech Republic	5.74
8	Finland	5.60
9	United Kingdom	5.53
10	Estonia	5.33
11	Slovakia	4.87
12	Germany	4.84
13	Luxembourg	4.54
14	Netherlands	4.44
15	Switzerland	4.63
16	France	4.33
17	Slovenia	4.26
18	Denmark	4.06
19	Spain	4.00
20	Canada	3.86
21	Italy	3.72
22	Belgium	3.72
23	Austria	3.56
24	Portugal	3.43
25	Poland	3.33
26	Norway	3.32
27	Greece	3.31
28	Iceland	2.87
29	Mexico	2.77

ICT Development Index

The ICT Development Index ranks and compares the level of ICT use and access across the various countries around the world.^[17] In 2014 ITU (International Telecommunications Union) released the latest rankings of the IDI, with Denmark attaining the top spot, followed by South Korea. The top 30 countries in the rankings include most high-income countries where quality of life is higher than average, which includes countries from Europe and other regions such as "Australia, Bahrain, Canada, Japan, Macao (China), New Zealand, Singapore and the United States; almost all countries surveyed improved their IDI ranking this year." In developing countries, ICT development is constrained by limited capabilities and often the objectives of ICT projects are not fully met.

The WSIS process and ICT development goals

On 21 December 2001, the United Nations General Assembly approved Resolution 56/183, endorsing the holding of the World Summit on the Information Society (WSIS) to discuss the opportunities and challenges facing today's information society.^[20] According to this resolution, the General Assembly related the Summit to the United Nations Millennium Declaration's goal of implementing ICT to achieve Millennium Development Goals. It also emphasized a multi-stakeholder approach to achieve these goals, using all stakeholders including civil society and the private sector, in addition to governments.

To help anchor and expand ICT to every habitable part of the world, "2015 is the deadline for achievements of the UN Millennium Development Goals (MDGs), which global leaders agreed upon in the year 2000."

In education

Today's society shows the ever-growing computer-centric lifestyle, which includes the rapid influx of computers in the modern classroom.

The United Nations Educational, Scientific and Cultural Organisation (UNESCO), a division of the United Nations, has made integrating ICT into education part of its efforts to ensure equity and access to education. The following, taken directly from a UNESCO publication on educational ICT, explains the organization's position on the initiative.

Information and Communication Technology can contribute to universal access to education, equity in education, the delivery of quality learning and teaching, teachers' professional development and more efficient education management, governance and administration. UNESCO takes a holistic and comprehensive approach to promoting ICT in education. Access, inclusion and quality are among the main challenges they can address. The Organization's Intersectral Platform for ICT in education focuses on these issues through the joint work of three of its sectors: Communication & Information, Education and Science.

Despite the power of computers to enhance and reform teaching and learning practices, improper implementation is a widespread issue beyond the reach of increased funding and technological advances with little evidence that teachers and tutors are properly integrating ICT into everyday learning. Intrinsic barriers such as a belief in more traditional teaching practices and individual attitudes towards computers in education as well as the teachers own comfort with computers and their ability to use them all as result in varying effectiveness in the integration of ICT in the classroom. 

Developing countries

Africa

Representatives meet for a policy forum on M-Learning at UNESCO's Mobile Learning Week in March 2017

ICT has been employed as an educational enhancement in Sub-Saharan Africa since the 1960's. Beginning with television and radio, it extended the reach of education from the classroom to the living room, and to geographical areas that had been beyond the reach of the traditional classroom. As technology evolved and became more widely used, efforts in Sub-Saharan Africa were also expanded. In the 1990's a massive effort to push computer hardware and software into schools was undertaken, with the goal of familiarizing both students and teachers with computers in the classroom. Since then, multiple projects have endeavored to continue the expansion of ICT's reach in the region, including the One Laptop Per Child (OLPC) project, which by 2015 had distributed over 2.4 million laptops to nearly 2 million students and teachers.

The inclusion of ICT in the classroom, often referred to as M-Learning, has expanded the reach of educators and improved their ability to track student progress in Sub-Saharan Africa. In particular, the mobile phone has been most important in this effort. Mobile phone use is widespread, and mobile networks cover a wider area than internet networks in the region. The devices are familiar to student, teach, and parent, and allow increased communication and access to educational materials. In addition to benefits for students, M-learning also offers the opportunity for better teacher training, which lends to a more consistent curriculum across the educational service area. In 2011, UNESCO started a yearly symposium called Mobile Learning Week with the purpose of gathering stakeholders to discuss the M-learning initiative.

Implementation is not without its challenges. While mobile phone and internet use are increasing much more rapidly in Sub-Saharan Africa than in other developing countries, the progress is still slow compared to the rest of the developed world, with smartphone penetration only expected to reach 20% by 2017. Additionally, there are gender, social, and geo-political barriers to educational access, and the severity of these barriers vary greatly by country. Overall, 29.6 million children in Sub-Saharan Africa were not in school in the year 2012, owing not just to the geographical divide, but also to political instability, the importance of social origins, social structure, and gender inequality. Once in school, students also face barriers to quality education, such as teacher competency, training and preparedness, access to educational materials, and lack of information management.

Today

In modern society ICT is ever-present, with over three billion people having access to the Internet. With approximately 8 out of 10 Internet users owning a smartphone, information and data are increasing by leaps and bounds. This rapid growth, especially in developing countries, has led ICT to become a keystone of everyday life, in which life without some facet of technology renders most of clerical, work and routine tasks dysfunctional. The most recent authoritative data, released in 2014, shows "that Internet use continues to grow steadily, at 6.6% globally in 2014 (3.3% in developed countries, 8.7% in the developing world); the number of Internet users in developing countries has doubled in five years (2009-2014), with two thirds of all people online now living in the developing world."

However, hurdles are still large. "Of the 4.3 billion people not yet using the Internet, 90% live in developing countries. In the world's 42 Least Connected Countries (LCCs), which are home to 2.5 billion people, access to ICTs remains largely out of reach, particularly for these countries' large rural populations." ICT has yet to penetrate the remote areas of some countries, with many developing countries dearth of any type of Internet. This also includes the availability of telephone lines, particularly the availability of cellular coverage, and other forms of electronic transmission of data. The latest "Measuring the Information Society Report" cautiously stated that the increase in the aforementioned cellular data coverage is ostensible, as "many users have multiple subscriptions, with global growth figures sometimes translating into little real improvement in the level of connectivity of those at the very bottom of the pyramid; an estimated 450 million people worldwide live in places which are still out of reach of mobile cellular service."

Favorably, the gap between the access to the Internet and mobile coverage has decreased substantially in the last fifteen years, in which "2015 [was] the deadline for achievements of the UN Millennium Development Goals (MDGs), which global leaders agreed upon in the year 2000, and the new data show ICT progress and highlight remaining gaps." ICT continues to take on new form, with nanotechnology set to usher in a new wave of ICT electronics and gadgets. ICT newest editions into the modern electronic world include smart watches, such as the Apple Watch, smart wristbands such as the Nike+ FuelBand, and smart TVs such as Google TV. With desktops soon becoming part of a bygone era, and laptops becoming the preferred method of computing, ICT continues to insinuate and alter itself in the ever-changing globe.

Information communication technologies play a role in facilitating accelerated pluralism in new social movements today. The internet according to Bruce Bimber is "accelerating the process of issue group formation and action" and coined the term accelerated pluralism to explain this new phenomena. ICTs are tools for "enabling social movement leaders and empowering dictators" in effect promoting societal change. ICTs can be used to garner grassroots support for a cause due to the internet allowing for political discourse and direct interventions with state policy as well as change the way complaints from the populace are handled by governments. Furthermore, ICTs in a household are associated with women rejecting justifications for intimate partner violence. According to a study published in 2017, this is likely because “[a]ccess to ICTs exposes women to different ways of life and different notions about women’s role in society and the household, especially in culturally conservative regions where traditional gender expectations contrast observed alternatives."

Currency

From Wikipedia, the free encyclopedia

A currency (from Middle English: curraunt, "in circulation", from Latin: currens, -entis), in the most specific use of the word, refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins. A more general definition is that a currency is a system of money (monetary units) in common use, especially in a nation. Under this definition, US dollars, British pounds, Australian dollars, European euros and Russian ruble are examples of currency. These various currencies are recognized stores of value and are traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance.

Other definitions of the term "currency" are discussed in their respective synonymous articles banknote, coin, and money. The latter definition, pertaining to the currency systems of nations, is the topic of this article. Currencies can be classified into two monetary systems: fiat money and commodity money, depending on what guarantees the value (the economy at large vs. the government's physical metal reserves). Some currencies are legal tender in certain political jurisdictions. Others are simply traded for their economic value. Digital currency has arisen with the popularity of computers and the Internet.

History

Early currency

Cowry shells being used as money by an Arab trader.

Originally money was a form of receipt, representing grain stored in temple granaries in Sumer in ancient Mesopotamia and later in Ancient Egypt.

In this first stage of currency, metals were used as symbols to represent value stored in the form of commodities. This formed the basis of trade in the Fertile Crescent for over 1500 years. However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store. Trade could only reach as far as the credibility of that military. By the late Bronze Age, however, a series of treaties had established safe passage for merchants around the Eastern Mediterranean, spreading from Minoan Crete and Mycenae in the northwest to Elam and Bahrain in the southeast. It is not known what was used as a currency for these exchanges, but it is thought that ox-hide shaped ingots of copper, produced in Cyprus, may have functioned as a currency.

It is thought that the increase in piracy and raiding associated with the Bronze Age collapse, possibly produced by the Peoples of the Sea, brought the trading system of oxhide ingots to an end. It was only with the recovery of Phoenician trade in the 10th and 9th centuries BC that saw a return to prosperity, and the appearance of real coinage, possibly first in Anatolia with Croesus of Lydia and subsequently with the Greeks and Persians. In Africa, many forms of value store have been used, including beads, ingots, ivory, various forms of weapons, livestock, the manilla currency, and ochre and other earth oxides. The manilla rings of West Africa were one of the currencies used from the 15th century onwards to sell slaves. African currency is still notable for its variety, and in many places various forms of barter still apply.

Coinage

These factors led to the metal itself being the store of value: first silver, then both silver and gold, and at one point also bronze. Now we have copper coins and other non-precious metals as coins. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. Archimedes' principle provided the next link: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with (see Numismatics).

Most major economies using coinage had several tiers of coins, using a mix of copper, silver and gold. Gold coins were used for large purchases, payment of the military and backing of state activities; they were more often used as measures of account than physical coins. Silver coins were used for midsized transactions, and as a unit of account for taxes, dues, contracts and fealty, while coins of copper, silver, or some mixture thereof (see debasement), were used for everyday transactions. This system had been used in ancient India since the time of the Mahajanapadas. The exact ratio in value of the three metals varied greatly in different eras and places; for example, the opening of silver mines in the Harz mountains of central Europe made silver relatively less valuable, as did the flood of New World silver after the Spanish conquests. However, the rarity of gold consistently made it more valuable than silver, and likewise silver was consistently worth more than copper.

Paper money

In premodern China, the need for credit and for a medium of exchange that was less physically cumbersome than large numbers of copper coins led to the introduction of paper money, i.e. banknotes. Their introduction was a gradual process which lasted from the late Tang dynasty (618–907) into the Song dynasty (960–1279). It began as a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory notes by wholesalers' shops. These notes were valid for temporary use in a small regional territory. In the 10th century, the Song dynasty government began to circulate these notes amongst the traders in its monopolized salt industry. The Song government granted several shops the right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still only locally and temporarily valid: it was not until the mid 13th century that a standard and uniform government issue of paper money became an acceptable nationwide currency. The already widespread methods of woodblock printing and then Pi Sheng's movable type printing by the 11th century were the impetus for the mass production of paper money in premodern China.

Song dynasty Jiaozi, the world's earliest paper money.

At around the same time in the medieval Islamic world, a vigorous monetary economy was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit, cheques, promissory notes, savings accounts, transactional accounts, loaning, trusts, exchange rates, the transfer of credit and debt, and banking institutions for loans and deposits.

In Europe, paper money was first introduced on a regular basis in Sweden in 1661 (although Washington Irving records an earlier emergency use of it, by the Spanish in a siege during the Conquest of Granada). As Sweden was rich in copper, its low value necessitated extraordinarily big coins, often weighing several kilograms.

The advantages of paper currency were numerous: it reduced the need to transport gold and silver, which was risky; it facilitated loans of gold or silver at interest, since the underlying specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed a division of currency into credit and specie backed forms. It enabled the sale of stock in joint-stock companies, and the redemption of those shares in paper.

But there were also disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more notes than they had specie to back them with. Second, because it increased the money supply, it increased inflationary pressures, a fact observed by David Hume in the 18th century. Thus paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.

At that time, both silver and gold were considered legal tender, and accepted by governments for taxes. However, the instability in the ratio between the two grew over the course of the 19th century, with the increases both in supply of these metals, particularly silver, and in trade. The parallel use of both metals is called bimetallism, and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States Greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.

By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Private banks and governments across the world followed Gresham's law: keeping the gold and silver they received, but paying out in notes. This did not happen all around the world at the same time, but occurred sporadically, generally in times of war or financial crisis, beginning in the early part of the 20th century and continuing across the world until the late 20th century, when the regime of floating fiat currencies came into force. One of the last countries to break away from the gold standard was the United States in 1971, an action known as the Nixon shock. No country has an enforceable gold standard or silver standard currency system.

Banknote era

A banknote (more commonly known as a bill in the United States and Canada) is a type of currency, and commonly used as legal tender in many jurisdictions. With coins, banknotes make up the cash form of all money. Banknotes are mostly paper, but Australia's Commonwealth Scientific and Industrial Research Organisation developed the world's first polymer currency in the 1980s that went into circulation on the nation's bicentenary in 1988. Now used in some 22 countries (over 40 if counting commemorative issues), polymer currency dramatically improves the life span of banknotes and prevents counterfeiting.

Modern currencies

Name of currency units by country.

Strength of currencies relative to USD as of April 2016.

Currencies exchange logo

Most traded currencies by value
Currency distribution of global foreign exchange market turnover

Rank	Currency	ISO 4217 code (symbol)	% daily share (April 2016)
1	United States dollar	USD (US$)	87.6%
2	Euro	EUR (€)	31.4%
3	Japanese yen	JPY (¥)	21.6%
4	Pound sterling	GBP (£)	12.8%
5	Australian dollar	AUD (A$)	6.9%
6	Canadian dollar	CAD (C$)	5.1%
7	Swiss franc	CHF (Fr)	4.8%
8	Renminbi	CNY (元)	4.0%
9	Swedish krona	SEK (kr)	2.2%
10	New Zealand dollar	NZD (NZ$)	2.1%
11	Mexican peso	MXN ($)	1.9%
12	Singapore dollar	SGD (S$)	1.8%
13	Hong Kong dollar	HKD (HK$)	1.7%
14	Norwegian krone	NOK (kr)	1.7%
15	South Korean won	KRW (₩)	1.7%
16	Turkish lira	TRY (₺)	1.4%
17	Russian ruble	RUB (₽)	1.1%
18	Indian rupee	INR (₹)	1.1%
19	Brazilian real	BRL (R$)	1.0%
20	South African rand	ZAR (R)	1.0%
Other			7.1%
Total			200.0%

Currency use is based on the concept of lex monetae; that a sovereign state decides which currency it shall use. Currently, the International Organization for Standardization has introduced a three-letter system of codes (ISO 4217) to define currency (as opposed to simple names or currency signs), in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in nearly a dozen different countries; most of these are tied to the Pound Sterling, while the remainder have varying values. In general, the three-letter code uses the ISO 3166-1 country code for the first two letters and the first letter of the name of the currency (D for dollar, for instance) as the third letter. United States currency, for instance is globally referred to as USD.
The International Monetary Fund uses a variant system when referring to national currencies.

Alternative currencies

Distinct from centrally controlled government-issued currencies, private decentralized trust networks support alternative currencies such as Bitcoin, Litecoin, Monero, Peercoin or Dogecoin, as well as branded currencies, for example 'obligation' based stores of value, such as quasi-regulated BarterCard, Loyalty Points (Credit Cards, Airlines) or Game-Credits (MMO games) that are based on reputation of commercial products, or highly regulated 'asset backed' 'alternative currencies' such as mobile-money schemes like MPESA (called E-Money Issuance).

Currency may be Internet-based and digital, for instance, Bitcoin is not tied to any specific country, or the IMF's SDR that is based on a basket of currencies (and assets held).

Control and production

In most cases, a central bank has a monopoly right to issue of coins and banknotes (fiat money) for its own area of circulation (a country or group of countries); it regulates the production of currency by banks (credit) through monetary policy.

An exchange rate is the price at which two currencies can be exchanged against each other. This is used for trade between the two currency zones. Exchange rates can be classified as either floating or fixed. In the former, day-to-day movements in exchange rates are determined by the market; in the latter, governments intervene in the market to buy or sell their currency to balance supply and demand at a fixed exchange rate.

In cases where a country has control of its own currency, that control is exercised either by a central bank or by a Ministry of Finance. The institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. A monetary authority is created and supported by its sponsoring government, so independence can be reduced by the legislative or executive authority that creates it.

Several countries can use the same name for their own separate currencies (for example, dollar in Australia, Canada and the United States). By contrast, several countries can also use the same currency (for example, the euro or the CFA franc), or one country can declare the currency of another country to be legal tender. For example, Panama and El Salvador have declared US currency to be legal tender, and from 1791 to 1857, Spanish silver coins were legal tender in the United States. At various times countries have either re-stamped foreign coins, or used currency board issuing one note of currency for each note of a foreign government held, as Ecuador currently does.

Each currency typically has a main currency unit (the dollar, for example, or the euro) and a fractional unit, often defined as ​¹⁄₁₀₀ of the main unit: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 pence = 1 pound, although units of ​¹⁄₁₀ or ​¹⁄₁₀₀₀ occasionally also occur. Some currencies do not have any smaller units at all, such as the Icelandic króna.

Mauritania and Madagascar are the only remaining countries that do not use the decimal system; instead, the Mauritanian ouguiya is in theory divided into 5 khoums, while the Malagasy ariary is theoretically divided into 5 iraimbilanja. In these countries, words like dollar or pound "were simply names for given weights of gold."^[12] Due to inflation khoums and iraimbilanja have in practice fallen into disuse. (See non-decimal currencies for other historic currencies with non-decimal divisions.)

Currency convertibility

Convertibility of a currency determines the ability of an individual, corporate or government to convert its local currency to another currency or vice versa with or without central bank/government intervention. Based on the above restrictions or free and readily conversion features, currencies are classified as:

Fully convertible 

When there are no restrictions or limitations on the amount of currency that can be traded on the international market, and the government does not artificially impose a fixed value or minimum value on the currency in international trade. The US dollar is an example of a fully convertible currency and, for this reason, US dollars are one of the major currencies traded in the foreign exchange market.

Partially convertible 

Central banks control international investments flowing in and out of the country, while most domestic trade transactions are handled without any special requirements, there are significant restrictions on international investing and special approval is often required in order to convert into other currencies. The Indian rupee and Renminbi are examples of a partially convertible currency.

Nonconvertible 

Neither participate in the international FOREX market nor allow conversion of these currencies by individuals or companies. As a result, these currencies are known as blocked currencies. e.g.: North Korean won and the Cuban peso.

Local currencies

In economics, a local currency is a currency not backed by a national government, and intended to trade only in a small area. Advocates such as Jane Jacobs argue that this enables an economically depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally produced goods (in a broader sense, this is the original purpose of all money). Opponents of this concept argue that local currency creates a barrier which can interfere with economies of scale and comparative advantage, and that in some cases they can serve as a means of tax evasion.

Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentinian economic crisis of 2002 in which IOUs issued by local governments quickly took on some of the characteristics of local currencies.

One of the best examples of a local currency is the original LETS currency, founded on Vancouver Island in the early 1980s. In 1982, the Canadian Central Bank’s lending rates ran up to 14% which drove chartered bank lending rates as high as 19%. The resulting currency and credit scarcity left island residents with few options other than to create a local currency.

Free market

From Wikipedia, the free encyclopedia

 

In economics, a free market is an idealized system in which the prices for goods and services are determined by the open market and by consumers. In a free market the laws and forces of supply and demand are free from any intervention by a government, by a price-setting monopoly, or by other authority. Proponents of the concept of free market contrast it with a regulated market, in which a government intervenes in supply and demand through various methods - such as tariffs - used to restrict trade and to protect the local economy. In an idealized free-market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy. 

 

Scholars contrast the concept of a free market with the concept of a coordinated market in fields of study such as political economy, new institutional economics, economic sociology, and political science. All of these fields emphasize the importance in actually existing market systems of rule-making institutions external to the simple forces of supply and demand which create space for those forces to operate to control productive output and distribution.

One famous statement of the scholarly approach to the concept of free markets within political science is Freer Markets, More Rules by Steven K. Vogel. As the title suggests, the scholarly study of free markets is more accurately understood as the act of increasing or decreasing how strict rules are (more free or less free; liberalizing or deliberalizing) rather than the idealized concept of free markets as a state of the world. "Free markets" as a verb phrase, rather than "free markets" as a noun phrase.

Although free markets are commonly associated with capitalism within a market economy in contemporary usage and popular culture, free markets have also been advocated by free-market anarchists, market socialists, and some proponents of cooperatives and advocates of profit sharing. Criticism of the theoretical concept may regard systems with significant market power, inequality of bargaining power, or information asymmetry as less than free, with regulation being necessary to control those imbalances in order to allow markets to function more efficiently as well as produce more desirable social outcomes.

Economic systems

Laissez-faire economics

The laissez-faire principle expresses a preference for an absence of non-market pressures on prices and wages, such as those from discriminatory government taxes, subsidies, tariffs, regulations of purely private behavior, or government-granted or coercive monopolies. Friedrich Hayek argued in The Pure Theory of Capital that the goal is the preservation of the unique information contained in the price itself.

The definition of free market has been disputed and made complex by collectivist political philosophers and socialist economic ideas. This contention arose from the divergence from classical economists such as Richard Cantillon, Adam Smith, David Ricardo, and Thomas Robert Malthus, and from the continental economic science developed primarily by the Spanish scholastic and French classical economists, including Anne-Robert-Jacques Turgot, Baron de Laune, Jean-Baptiste Say and Frédéric Bastiat.

During the marginal revolution, subjective value theory was rediscovered.

Socialist economics

Various forms of socialism based on free markets have existed since the 19th century. Early notable socialist proponents of free markets include Pierre-Joseph Proudhon, Benjamin Tucker, and the Ricardian socialists. These economists believed that genuinely free markets and voluntary exchange could not exist within the exploitative conditions of capitalism.

These proposals ranged from various forms of worker cooperatives operating in a free market economy, such as the mutualist system proposed by Proudhon, to state-owned enterprises operating in unregulated and open markets. These models of socialism are not to be confused with other forms of market socialism (e.g. the Lange model) where publicly owned enterprises are coordinated by various degrees of economic planning, or where capital good prices are determined through marginal cost pricing.

Advocates of free-market socialism such as Jaroslav Vanek argue that genuinely free markets are not possible under conditions of private ownership of productive property. Instead, he contends that the class differences and inequalities in income and power that result from private ownership enable the interests of the dominant class to skew the market to their favor, either in the form of monopoly and market power, or by utilizing their wealth and resources to legislate government policies that benefit their specific business interests. Additionally, Vanek states that workers in a socialist economy based on cooperative and self-managed enterprises have stronger incentives to maximize productivity because they would receive a share of the profits (based on the overall performance of their enterprise) in addition to receiving their fixed wage or salary.

Socialists also assert that free market capitalism leads to an excessively skewed distribution of income, which in turn leads to social instability. As a result, corrective measures in the form of social welfare, re-distributive taxation, and administrative costs are required, which end up being paid into workers hands who spend and help the economy to run. They claim corporate monopolies run rampant in free markets, with endless agency over the consumer. Thus, free market socialism desires government regulation of markets to prevent social instability, although at the cost of taxpayer dollars.

Geoist economics

As explained above, for classical economists such as Adam Smith the term "free market" does not necessarily refer to a market free from government interference, but rather free from all forms of economic privilege, monopolies, and artificial scarcities. This implies that economic rents, i.e. profits generated from a lack of perfect competition, must be reduced or eliminated as much as possible through free competition.

Economic theory suggests the returns to land and other natural resources are economic rents that cannot be reduced in such a way because of their perfect inelastic supply. Some economic thinkers emphasize the need to share those rents as an essential requirement for a well functioning market. It is suggested this would both eliminate the need for regular taxes that have a negative effect on trade (see deadweight loss) as well as release land and resources that are speculated upon or monopolised. Two features that improve the competition and free market mechanisms. Winston Churchill supported this view by his statement "Land is the mother of all monopoly".

The American economist and social philosopher Henry George, the most famous proponent of this thesis, wanted to accomplish this through a high land value tax that replaces all other taxes. Followers of his ideas are often called Georgists or Geoists and Geolibertarians.

Léon Walras, one of the founders of the neoclassical economics who helped formulate the general equilibrium theory, had a very similar view. He argued that free competition could only be realized under conditions of state ownership of natural resources and land. Additionally, income taxes could be eliminated because the state would receive income to finance public services through owning such resources and enterprises.

Non-laissez-faire capitalist systems

The stronger incentives to maximize productivity that Vanek conceives as possible in a socialist economy based on cooperative and self-managed enterprises might be accomplished in a capitalistic free market if employee-owned companies were the norm, as envisioned by various thinkers including Louis O. Kelso and James S. Albus.

Concepts

Supply and demand

Demand for an item (such as goods or services) refers to the market pressure from people trying to buy it. Buyers have a maximum price they are willing to pay and sellers have a minimum price they are willing to offer their product. The point at which the supply and demand curves meet is the equilibrium price of the good and quantity demanded. Sellers willing to offer their goods at a lower price than the equilibrium price receive the difference as producer surplus. Buyers willing to pay for goods at a higher price than the equilibrium price receive the difference as consumer surplus.

The model is commonly applied to wages in the market for labor. The typical roles of supplier and consumer are reversed. The suppliers are individuals, who try to sell (supply) their labor for the highest price. The consumers are businesses, which try to buy (demand) the type of labor they need at the lowest price. As more people offer their labor in that market, the equilibrium wage decreases and the equilibrium level of employment increases as the supply curve shifts to the right. The opposite happens if fewer people offer their wages in the market as the supply curve shifts to the left.

In a free market, individuals and firms taking part in these transactions have the liberty to enter, leave and participate in the market as they so choose. Prices and quantities are allowed to adjust according to economic conditions in order to reach equilibrium and properly allocate resources. However, in many countries around the world, governments seek to intervene in the free market in order to achieve certain social or political agendas. Governments may attempt to create social equality or equality of outcome by intervening in the market through actions such as imposing a minimum wage (price floor) or erecting price controls (price ceiling). Other lesser-known goals are also pursued, such as in the United States, where the federal government subsidizes owners of fertile land to not grow crops in order to prevent the supply curve from further shifting to the right and decreasing the equilibrium price. This is done under the justification of maintaining farmers' profits; due to the relative inelasticity of demand for crops, increased supply would lower the price but not significantly increase quantity demanded, thus placing pressure on farmers to exit the market. Such interventions are often done in the name of maintaining basic assumptions of free markets, such as the idea that the costs of production must be included in the price of goods. Pollution and depletion costs are sometimes NOT included in the cost of production (a manufacturer that withdraws water at one location then discharges it polluted downstream, avoiding the cost of treating the water), so governments may opt to impose regulations in an attempt to try to internalize all of the cost of production (and ultimately include them in the price of the goods).

Advocates of the free market contend that government intervention hampers economic growth by disrupting the natural allocation of resources according to supply and demand, while critics of the free market contend that government intervention is sometimes necessary to protect a country's economy from better-developed and more influential economies, while providing the stability necessary for wise long-term investment. Milton Friedman pointed to failures of central planning, price controls and state-owned corporations, particularly in the Soviet Union and Communist China, while Ha-Joon Chang cites the examples of post-war Japan and the growth of South Korea's steel industry.

Economic equilibrium

General equilibrium theory has demonstrated, with varying degrees of mathematical rigor over time, that under certain conditions of competition, the law of supply and demand predominates in this ideal free and competitive market, influencing prices toward an equilibrium that balances the demands for the products against the supplies. At these equilibrium prices, the market distributes the products to the purchasers according to each purchaser's preference (or utility) for each product and within the relative limits of each buyer's purchasing power. This result is described as market efficiency, or more specifically a Pareto optimum.

This equilibrating behavior of free markets requires certain assumptions about their agents, collectively known as perfect competition, which therefore cannot be results of the market that they create. Among these assumptions are several which are impossible to fully achieve in a real market, such as complete information, interchangeable goods and services, and lack of market power. The question then is what approximations of these conditions guarantee approximations of market efficiency, and which failures in competition generate overall market failures. Several Nobel Prizes in Economics have been awarded for analyses of market failures due to asymmetric information.

Low barriers to entry

A free market does not require the existence of competition, however it does require a framework that allows new market entrants. Hence, in the lack of coercive barriers, and in markets with low entry cost it is generally understood that competition flourishes in a free-market environment. It often suggests the presence of the profit motive, although neither a profit motive or profit itself are necessary for a free market. All modern free markets are understood to include entrepreneurs, both individuals and businesses. Typically, a modern free market economy would include other features, such as a stock exchange and a financial services sector, but they do not define it.

Spontaneous order

Friedrich Hayek popularized the view that market economies promote spontaneous order which results in a better "allocation of societal resources than any design could achieve." According to this view, in market economies are characterized by the formation of complex transactional networks which produce and distribute goods and services throughout the economy. These networks are not designed, but nevertheless emerge as a result of decentralized individual economic decisions. The idea of spontaneous order is an elaboration on the invisible hand proposed by Adam Smith in The Wealth of Nations. Smith wrote that the individual who:

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the [common] good.

— Adam Smith, Wealth of Nations

Smith pointed out that one does not get one's dinner by appealing to the brother-love of the butcher, the farmer or the baker. Rather one appeals to their self-interest, and pays them for their labor.

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

— Adam Smith^[19]

Supporters of this view claim that spontaneous order is superior to any order that does not allow individuals to make their own choices of what to produce, what to buy, what to sell, and at what prices, due to the number and complexity of the factors involved. They further believe that any attempt to implement central planning will result in more disorder, or a less efficient production and distribution of goods and services.

Critics, such as political economist Karl Polanyi, question whether a spontaneously ordered market can exist, completely free of "distortions" of political policy; claiming that even the ostensibly freest markets require a state to exercise coercive power in some areas – to enforce contracts, to govern the formation of labor unions, to spell out the rights and obligations of corporations, to shape who has standing to bring legal actions, to define what constitutes an unacceptable conflict of interest, etc.

General principles

The Heritage Foundation, a right-wing think tank, tried to identify the key factors necessary to measure the degree of freedom of economy of a particular country. In 1986 they introduced the Index of Economic Freedom, which is based on some fifty variables. This and other similar indices do not define a free market, but measure the degree to which a modern economy is free, meaning in most cases, free of state intervention. The variables are divided into the following major groups:

• Trade policy,
• Fiscal burden of government,
• Government intervention in the economy,
• Monetary policy,
• Capital flows and foreign investment,
• Banking and finance,
• Wages and prices,
• Property rights,
• Regulation, and
• Informal market activity.

These free market principles are what helped America transition to a free market economy. International free trade improved the country and in order for Americans to prosper from a strong economy they had no choice but to embrace it. Each group is assigned a numerical value between 1 and 5; IEF is the arithmetical mean of the values, rounded to the nearest hundredth. Initially, countries which were traditionally considered capitalistic received high ratings, but the method improved over time. Some economists, like Milton Friedman and other laissez-faire economists have argued that there is a direct relationship between economic growth and economic freedom, and some studies suggest this is true. Ongoing debates exist among scholars regarding methodological issues in empirical studies of the connection between economic freedom and economic growth. These debates and studies continue to explore just what that relationship entails.

The principles of a free market are defined as:

1. Individual Rights: "We are each created with equal individual rights to control and to defend our life, liberty and property and to voluntary contractual exchange."
   
2. Limited Government: "Governments are instituted only to secure individual rights, deriving their just powers from the consent of the governed."
   
3. Equal Justice Under Law: "Government must treat everyone equally; neither rewarding failure nor punishing success."
   
4. Subsidiarity: "Government authority must reside at the lowest feasible level."
   
5. Spontaneous Order: "When individual rights are respected, unregulated competition will maximize economic benefit for society by providing the most goods and services possible at the lowest cost."
   
6. Property Rights: "Private ownership is the most efficient way to sustainably utilize resources."
   
7. The Golden Rule: "Deal with others honestly and require honesty in return."

Criticisms

Critics of the free market have argued that, in real world situations, it has proven to be susceptible to the development of price fixing monopolies. Such reasoning has led to government intervention, e.g. the United States antitrust law.

Two prominent Canadian authors argue that government at times has to intervene to ensure competition in large and important industries. Naomi Klein illustrates this roughly in her work The Shock Doctrine and John Ralston Saul more humorously illustrates this through various examples in The Collapse of Globalism and the Reinvention of the World. While its supporters argue that only a free market can create healthy competition and therefore more business and reasonable prices, opponents say that a free market in its purest form may result in the opposite. According to Klein and Ralston, the merging of companies into giant corporations or the privatization of government-run industry and national assets often result in monopolies (or oligopolies) requiring government intervention to force competition and reasonable prices. Another form of market failure is speculation, where transactions are made to profit from short term fluctuation, rather from the intrinsic value of the companies or products.

This criticism has been challenged by historians such as Lawrence Reed, who argued that monopolies have historically failed to form even in the absence of anti-trust law. This is because monopolies are inherently difficult to maintain: a company that tries to maintain its monopoly by buying out new competitors, for instance, is incentivizing newcomers to enter the market in hope of a buy-out.

American philosopher and author Cornel West has derisively termed what he perceives as dogmatic arguments for laissez-faire economic policies as "free-market fundamentalism". West has contended that such mentality "trivializes the concern for public interest" and "makes money-driven, poll-obsessed elected officials deferential to corporate goals of profit – often at the cost of the common good." American political philosopher Michael J. Sandel contends that in the last 30 years the United States has moved beyond just having a market economy and has become a market society where literally everything is for sale, including aspects of social and civic life such as education, access to justice and political influence. The economic historian Karl Polanyi was highly critical of the idea of the market-based society in his book The Great Transformation, noting that any attempt at its creation would undermine human society and the common good.

Critics of free market economics range from those who reject markets entirely in favour of a planned economy as advocated by various Marxists, to those who wish to see market failures regulated to various degrees or supplemented by government interventions. Keynesians support market roles for government, such as using fiscal policy for economic stimulus when actions in the private sector lead to sub-optimal economic outcomes of depressions or recessions. Business cycle theory is used by Keynesians to explain liquidity traps, by which underconsumption occurs, to argue for government intervention with fiscal policy.

Some would argue, only one known example of a true free market exists, which is the black market. The black market is under constant threat by the police, but under no circumstances do the police regulate the substances that are being created. The black market produces wholly unregulated goods, and are purchased and consumed unregulated. That is to say, anyone can produce anything at any time, and anyone can purchase anything available at any time. The alternative view is that the black market is not a free market at all since high prices and monopolies are often enforced through murder, theft and destruction. Black markets can only exist peripheral to regulated markets where laws are being regularly enforced.