Global imbalances and exchange rates Jomo Kwame Sundaram 26 January 2010
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 World trade collapse
South exports fall more Source: CPB
Mineral prices fell more
6 Imbalances narrow
7 ST real interest rates Negative Rates
8 US Fed LT rates
9 Easy liquidity
Net transfer of financial resources from South to North
11 Net capital importers
Capital inflows contract
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
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
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
Self-protection 1990s LA, EA crises accumulate reserves - no lender of last resort - onerous IMF conditionalities No insurance element
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 Thank you Please visit IDEAs UN-DESA esa.un.org andesa.un.org G24 websiteswww.g24.org Research papers Policy briefs Other documents