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Global imbalances and exchange rates Jomo Kwame Sundaram 26 January 2010.

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Presentation on theme: "Global imbalances and exchange rates Jomo Kwame Sundaram 26 January 2010."— Presentation transcript:

1 Global imbalances and exchange rates Jomo Kwame Sundaram 26 January 2010

2 2 Global imbalances grow United States Oil exporters Euro Area Japan China Other Asia Other industrialised Central and Eastern Europe Latin America USD bn.

3 3 World trade collapse

4 South exports fall more Source: CPB

5 Mineral prices fell more

6 6 Imbalances narrow

7 7 ST real interest rates Negative Rates

8 8 US Fed LT rates

9 9 Easy liquidity

10 Net transfer of financial resources from South to North

11 11 Net capital importers

12 Capital inflows contract

13 Bretton Woods vs Keynes Dollar-gold parity ($35/oz.) Permanent US current account deficit possible Seigneurage income Vietnam Run on Eurodollars 1971 End of BW system Non-system: IMF Interim Committee Rise of Japan Plaza 2 endaka Drucker: X border flows; K acct liberalization Rise of China exchange rates, SWF

14 EA miracle + X rates EP con EP: ISI + EOI; scale economies Undervalued X rates since postwar Japan SEA mid-80s devaluations + endaka Unlike NEA, SEA FDI-dependent Finance dominant, oppose $ appreciation post-1995 end of endaka crisis

15 China boom + X rates 1994 RMB devaluation Contract manufacturing: learning by doing End of TVEs boom scale economies Productivity gains + Lewisian L market consumer price deflation + high growth China super-competitive Big overall trade surplus reserves accumulation from mid-2000s $3trn USD assets, including >$1trn US T bonds China cannot afford massive $ depreciation Japanese endaka end of Japanese miracle

16 Self-protection 1990s LA, EA crises accumulate reserves - no lender of last resort - onerous IMF conditionalities No insurance element

17 17 Crisis + reserves Financial positions stronger than during Asian + LA crises (more foreign reserves, better fiscal balances) But reserves rapidly evaporated with export collapse; fiscal space also diminished IMF late 09 paper (Blanchard, et al.): Reserve accumulation did not help in crisis

18 18 Thank you Please visit IDEAs UN-DESA G24 Research papers Policy briefs Other documents

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