Financial systems have been the driving force of global economies for centuries. Within these systems, one of the oldest and most reliable instruments has been the guarantee. This concept, which has evolved over time, has played a pivotal role in consolidating free trade as an economic policy in several nations. But how do they relate?
The Origin of Guarantees
The word «guarantee» comes from the Arabic «hawála», which means transfer. From ancient times, in markets and trading centers, it was essential to ensure debts were paid. A guarantee acts as a pledge, promising that if the main debtor does not fulfill their obligation, the guarantor will be liable for the payment.
The ancient «hawála», in essence, was a money transfer system based on trust between agents. This method allowed for the movement of capital without the need to physically move money, thus avoiding the risks of transportation in times where thefts and looting were common.
Guarantees and Free Trade
Free trade, on the other hand, is an economic policy that promotes the reduction or elimination of trade barriers between nations. This philosophy took firm root during the 19th century, driven by classical economists like Adam Smith and David Ricardo.
So, what is the connection between guarantees and free trade?
- Trust in International Trade: With the adoption of free trade policies, the volume of international trade soared. Guarantees allowed traders and companies to expand into international markets, offering a payment assurance to their business partners in other nations.
- Financial Stability: Free trade demands a robust financial system. Guarantees, by ensuring solvency and integrity of transactions, played a vital role in the creation of a stable financial system that underpinned the growth of international trade.
- Promotion of Investment: By reducing trade barriers and encouraging competition, free trade fosters investment. Guarantees, by providing additional security to investors and lenders, facilitated access to the necessary capital to seize the opportunities created by free trade.
While guarantees and free trade may seem like distant concepts at first glance, their interaction has been crucial for global economic development. The trust and security provided by guarantees allowed trade and investment to flourish under the free trade paradigm, once again demonstrating how financial instruments and economic policies are intricately woven into the fabric of our economic history.
If you are considering embarking on a new project or business in this global trade environment and need a guarantee to secure your operations, we are here to assist you. Our experience and trusted network ensure that you can execute your plans with the security that a solid guarantee provides. Contact us!