Abstract
After all major financial crises, debates about their causes generally continue without resolution for years and even decades. The aftermath of the global financial crisis of 2008–2009 is unlikely to be an exception to this rule. As one example, the debate over whether and how much persistent, large imbalances in international trade and financial flows contributed to the unsustainable boom that preceded the crisis continues.1 In this chapter, I largely leave aside the question of whether global imbalances were an important cause of the crisis, although I argue that the lack of agreement on this issue is one factor — but not the most important — contributing to the continuing inability of governments to take measures that would substantially reduce them. One reason for setting aside the debate about the role of global imbalances in causing the crisis is that even if one took the view that they played little role in producing the crisis, there are a variety of other reasons why they should remain high on the agenda of global economic governance. Not least, continuing large payments imbalances raise concerns about the consequences of the growing net indebtedness of the United States and of the continued accumulation of US dollar-denominated government debt by China, and further complicate the already problematic relationship between Washington and Beijing.2
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Notes
Following convention, when referring to ‘global imbalances’, I mean (except where noted) persistent large imbalances in the current account on the part of major countries. There is no agreed definition of what ‘large’ means in this context. For arguments that global imbalances were one important cause of the crisis, see A. Brender and F. Pisani, Globalised Finance and its Collapse (Paris/Brussels: Editions La Découvertes/Dexia, 2009); S. Dunaway, Global Imbalances and the Financial Crisis (New York: Council on Foreign Relations, Center for Geo-economic Studies, Council Special Report No. 44, March 2009); Financial Services Authority [UK], The Turner Review: A Regulatory Response to the Global Banking Crisis (London: FSA, 2009), p. 32; and International Monetary Fund [IMF], Initial Lessons of the Crisis (Washington, D.C.: Research, Monetary and Capital Markets, and Strategy, Policy, and Review Departments, IMF, 6 February 2009). For dissenting views, see M. Dooley and P. Garber, ‘Global Imbalances and the Crisis: A Solution in Search of a Problem’, VoxEU, 21 March 2009, and C. Borio and P. Disyatat, ‘Global Imbalances and the Financial Crisis: Link or No Link?’ BIS Working Paper, 346 (2011).
For further discussion, see R. Foot and A. Walter, China, the United States and Global Order (Cambridge: Cambridge University Press, 2011).
M. Obstfeld and K. Rogoff, ‘The Unsustainable US Current Account Position Revisited’, NBER Working Paper, 10869 (2004);R.G. Rajan, ‘Global Current Account Imbalances: Hard Landing or Soft Landing?’, speech to the Crédit Suisse First Boston Conference, Hong Kong, 15 March 2005. These more pessimistic diagnoses were not shared by all (e.g. M.P. Dooley, David Folkerts-Landau and P. Garber, ‘The Revised Bretton Woods System’, International Journal of Finance and Economics, 9:4 (2004), 307–313), but no one could be sure that they were incorrect.
B. Bernanke, ‘The Global Saving Glut and the US Current Account Deficit’, Sandridge Lecture, Virginia Association of Economics, Richmond, VA, 10 March 2005. For extensions of the savings glut hypothesis, see M. Wolf, ‘Asia’s Revenge’, FT.com, 8 October 2008, and ‘Global imbalances threaten the survival of liberal trade’, FT.com, 2 December 2008; C.M. Reinhart and K.S. Rogoff, ‘Is the 2007 U.S. Sub-Prime Financial Crisis so Different? An International Historical Comparison’, NBER Working Paper, 13761(2008), 11.
C.F. Bergsten, ‘A Partnership of Equals: How Washington Should Respond to China’s Economic Challenge’, Foreign Affairs, 87:4 (2008), 57–69 (my emphasis).
L.W. Pauly, Who Elected the Bankers? Surveillance and Control in the World Economy (Ithaca: Cornell University Press, 1997), pp. 109–10.
J.G. Ruggie, ‘International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order’, International Organization, 36:2 (1982), 379–415.
M.C. Webb, The Political Economy of Policy Coordination (Ithaca: Cornell University Press, 1995).
Bank for International Settlements, Annual Report 2010/11 (Basel: BIS, 2011), p. 35.
On this controversy, see M. Goldstein, ‘A (Lack of) Progress Report on China’s Exchange Rate Policies’, Working Paper Series, WP 07-5 (Washington, D.C.: Peterson Institute for International Economics, 2007), and M. Mussa, ‘IMF Surveillance over China’s Exchange Rate Policy’, paper presented at the Conference on China’s Exchange Rate Policy, Peterson Institute for International Economics, Washington D.C., 19 October 2007.
H.J. Jacobson and M. Oksenberg, China’s Participation in the IMF, the World Bank, and GATT: Toward a Global Economic Order (Ann Arbor: University of Michigan Press, 1990); A. Kent, Beyond Compliance: China, International Organizations, and Global Security (Stanford, CA: Stanford University Press, 2007).
IMF, People’s Republic of China: 2006 Article IV Consultation — Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion (Washington, D.C.: IMF, October 2006), pp. 18–20.
X.L. Wu, ‘Keynote Address: China’s Exchange Rate Policy and Economic Restructuring’, in M. Goldstein and N.R. Lardy (eds.), Debating China’s Exchange Rate Policy (Washington, D.C.: Peterson Institute for International Economics, 2008), pp. 355–62.
C.F. Bergsten, et al., China’s Rise: Challenges and Opportunities (Washington, D.C.: Peterson Institute for International Economics, Center for Strategic and International Studies, 2008), p. 110.
V.C. Shih, Factions and Finance in China: Elite Conflict and Inflation (Cambridge: Cambridge University Press, 2008).
US law in this area is based upon the IMF’s 1977 rules on currency manipulation and is intended to strengthen their enforcement. See 22 U.S.C. 5304, section 3004, and J.A. Frankel and S.J. Wei, ‘Assessing China’s Exchange Rate Regime’, Economic Policy, 22:51 (2007), 575–627.
C.R. Henning, ‘Democratic Accountability and the Exchange-Rate Policy of the Euro Area’, Review of International Political Economy, 14:5 (2007), 789.
IMF, People’s Republic of China: 2006 Article IV Consultation, 20;Y.D. Yu, ‘Global Imbalances: China’s Perspective’, paper prepared for conference on global imbalances, Washington, D.C., February 2007, p. 11.
J. Gowa, Closing the Gold Window: Domestic Politics and the End of Bretton Woods (Ithaca: Cornell University Press, 1983).
Y. Funabashi, Managing the Dollar: From the Plaza to the Louvre (Washington, D.C.: Institute for International Economics, 1989); Webb, Political Economy of Policy Coordination.
On the pre-crisis failure of IMF surveillance in the US and British cases, see the IMF Independent Evaluation Office, IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004–07 (Washington, D.C.: IEO, 2011), especially background papers 4 and 5 on the United States and Britain respectively.
See, for example, IMF, G-20 Mutual Assessment Process — Alternative Policy Scenarios (Washington, D.C.: IMF, June 2010).
See, for example, IMF, The United States: 2011 Article IV Consultation (Washington, D.C.: IMF, Country Report no. 11/201, July 2011).
I. Bremmer and N. Roubini, ‘A G-Zero World’, Foreign Affairs, 90:2 (2011), 2–7.
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© 2013 Andrew Walter
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Walter, A. (2013). The Mismanagement of Global Imbalances: Why Did Multilateralism Fail?. In: Prantl, J. (eds) Effective Multilateralism. St Antony’ Series. Palgrave Macmillan, London. https://doi.org/10.1057/9781137312983_12
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DOI: https://doi.org/10.1057/9781137312983_12
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