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 -1000 -800 -600 -400 -200 0 200 400 600 800 1000 90 9192 9394 9596 9798 9900 0102 0304 0506 07 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 1997-98 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 www.networkideas.orgwww.networkideas.org UN-DESA esa.un.org andesa.un.org G24 www.g24.org websiteswww.g24.org Research papers Policy briefs Other documents