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Before the global economic and financial crisis began in August 2007, the enormous current account deficits and surpluses of some major countries and groups of countries (the United States, China, and oil producers, for example) were widely identified as posing the greatest risk to international economic and financial stability. As the crisis winds down, attention has shifted to whether flaws in the international monetary system contributed to such imbalances as well as to the actual crisis.
My answers to the question of the contribution of global imbalances to crises and to eight related questions about flaws in today's international monetary system are as follows:
Q1 – Is the current international monetary system prone to prolonged periods of risky current account imbalances? NO.
Q2 – Were current account payments imbalances a major cause of the global economic and financial crisis of 2007–09? NO.
Q3 – Was a malfunctioning international monetary system a major cause of the crisis? NO.
Q4 – Are persistent current account imbalances a source of systemic vulnerability? YES.
Q5 – Are current account surpluses the inevitable counterpart to current account deficits of reserve-issuing countries? NO.
Q6 – Can persistent current account imbalances be prevented? YES.
Q7 – Is universal floating of currencies the solution to persistent current account imbalances? NO.
Q8 – Should countries in persistent current account surplus be taxed, as in Keynes's original scheme for Bretton Woods? NO.
Q9 – Is the current international monetary regime better than the gold standard, interwar system, and Bretton Woods? YES.
Those interested in more detailed answers are invited to read "
The International Monetary System and Global Imbalances" posted on the website of the Peterson Institute for International Economics.
