In this new economy, what are the underlying principles that govern its operation? The most significant participants in the global collaborative economy are: Individual buyers and sellers who trade with each other on a regular basis; they may either be private individuals selling and buying goods online on a regular basis (online marketers) or large professional service providers offering such services on a regular basis; Users who use the offered assets; and Platform creators who create the networks that these users and businesses operate in. The system enables users to enter the market with their assets safely stored on offline computers and then sell, buy and transfer their products online to other users all over the world by trading in real time. The network effect is that you only need a small computer with internet connection to join the global economy. And if you want to become a trader and start making some profits you do not even have to go to the local market; you can simply open an online account on a reputed trading platform, create a trading account, place trades and wait for your profits to start pouring in.
The economic model of the economy shows three interacting markets with distinct characteristics. First of all the market is characterized by a central economic concept which is referred to as a transactional principle. This principle is based on the assumption that, in order for money to change hands, it needs to be transferred from one entity to another, i.e. a seller wants to buy from a buyer wants to sell to a seller. This is how money travels through the economy.
Secondly there are non-transactional economic principles which flow from the first principle to the second. The values of currencies are determined by fundamental economic factors such as productivity, capital formation, financial strength and political stability. A country’s currency value is largely influenced by external factors such as political stability and the stability of the economy’s key sectors such as finance, goods and services, labour and capital. These factors give rise to fluctuations in the domestic economy, which in turn affect foreign trade, investment and financing.
Thirdly, there is the monetary principle which determines the position of the economy. Money is created and lent out through a central bank. This institution can either issue banknotes (which are legal tender) or it can create fiat money. Fiat money is nothing but an IOU from the government which is convertible into cash on demand at the rate agreed upon by the issuer. In a fiat economy, the value of money is determined by the general needs of the public. It is designed to meet the requirements of the economy for any given time frame.
On the other hand, the non-monetary aspect of an economy has little impact on its economy. Goods and services are produced and stored in the physical environment. Money is created by the production process and it is usually issued by banks, other financial institutions or by the central government. The production process also involves the transfer of resources from the hands of owners directly to those of the production process.
The process of production entails three main activities: production of goods and services, the transformation of raw materials into goods and the storage of finished goods. If the process does not go smoothly, the economy will suffer. For instance, if goods are produced at a high rate but are not properly stored, the economy will suffer. To avoid such a problem, businesses should engage in market-oriented trading (exchange). Market-oriented trading is the process of buying goods from one another in order to create wealth. The goods should be traded in the open market (the markets including stock exchanges) so that businesses can compete over the goods and establish prices for their goods.
There are two types of markets in an economy: monetary markets and capital markets. Monetary markets (also called capital markets) involve the movement of monetary units as assets and liabilities. Capital markets are concerned with the movement of funds and their availability. Basically, capital markets refer to the movement of money and its availability.
A firm’s ability to make goods depends on the amount of money available to invest. Money, unlike goods, can easily be generated artificially (through the printing press, for example). Production of goods and services therefore relies on the availability of money. Without money, production of goods and services would not be possible. Without money, the economy’s economy would become bankrupt. On the other hand, the value of money declines when money is hoarded and accumulates in the hands of the few.