[Global Economic Crisis and Movements of Cross-Border Capital Flows ―Implication to the Global Economic Order―]
Prior to the occurrence of the global financial crisis, the world had faced the “global imbalance.” This refers to the growing US current account deficit and, in parallel, the growing current account surpluses in China, other Asian countries, and resource-rich nations. This status of imbalance has been often called as the "Bretton Woods II system," as it shares the features similar to those of the Bretton Woods system prevailed from the 1945 to 1971. The Bretton Woods II system has been regarded sustainable for a time being as long as China and other Asian countries continue to pursue export-oriented growth strategies and actively intervene in the foreign exchange market aimed at stabilizing their currencies mainly against the US dollar. Nonetheless, the system entailed “instability” arising from the possibility of the system falling into the “hard-landing” scenario (triggered by the sudden withdrawal of foreign capital from the US markets, which leads to sharp dollar depreciation, decline in US stock prices, and cut in US long-term bond prices). The current global financial crisis differs from the hard-landing scenario, since it has not accompanied the “triple” declines. Nonetheless, the current crisis has resulted in re-balancing the global imbalance or a cut in US current account deficit. This paper examines the features related to the re-balancing of the global imbalance, and analyzes whether the structural features of the Brettton Woods II system as well as instability remain. The paper stresses that the imbalance between the United States and China has been strengthened further after the crisis, as evidenced from that fact that the share of China in US current account deficit has risen from about 30% in the pre-crisis period to over 70% currently. Structural features characterizing the Bretton Woods II system, as well as instability, have also been enhanced since the crisis. The paper also examines the possibility of the euro and SDR to replace the US dollar and concludes that the immediate substitution may not be possible in the near future. It also discusses the implications with respect to the framework for achieving strong, sustainable, balanced economic growth agreed in G20 financial summit in September 2009.
|Date of creation:||Nov 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald McKinnon & Gunther Schnabl, 2009. "China's financial conundrum and global imbalances," BIS Working Papers 277, Bank for International Settlements.
- Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005.
"An essay on the revived Bretton Woods system,"
Federal Reserve Bank of San Francisco, issue Feb.
- Ila Patnaik & Ajay Shah, 2009.
"The difficulties of the Chinese and Indian exchange rate regimes,"
Macroeconomics Working Papers
22975, East Asian Bureau of Economic Research.
- Ila Patnaik & Ajay Shah, 2009. "The difficulties of the Chinese and Indian exchange rate regimes," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 6(1), pages 157-173, June.
- Patnaik, Ila & Shah, Ajay, 2009. "The difficulties of the Chinese and Indian exchange rate regimes," Working Papers 09/62, National Institute of Public Finance and Policy.
- Ajay Shah & Ila Patnaik, 2009. "The Difficulties of the Chinese and Indian Exchange Rate Regimes," Working Papers id:2321, eSocialSciences.
- Michael Dooley & David Folkerts-Landau & Peter Garber, 2009.
"Bretton Woods Ii Still Defines The International Monetary System,"
Pacific Economic Review,
Wiley Blackwell, vol. 14(3), pages 297-311, 08.
- Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2009. "Bretton Woods II Still Defines the International Monetary System," NBER Working Papers 14731, National Bureau of Economic Research, Inc.
- Pietro Alessandrini & Michele Fratianni, 2009.
"International Monies, Special Drawing Rights, and Supernational Money,"
Mo.Fi.R. Working Papers
26, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
- Pietro Alessandrini & Michele Fratianni, 2009. "International Monies, Special Drawing Rights, and Supernational Money," Working Papers 2009-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Eswar S. Prasad, 2009. "Effects of the Financial Crisis on the U.S.-China Economic Relationship," Cato Journal, Cato Journal, Cato Institute, vol. 29(2), pages 223-235, Winter.
- Sayuri SHIRAI, 2009. "The Impact of the US Subprime Mortgage Crisis on the World and East Asia: Through Analyses of Cross-border Capital Movements," Working Papers d013, Economic Research Institute for ASEAN and East Asia (ERIA).
- Francis E. Warnock & Veronica C. Warnock, 2005.
"International capital flows and U.S. interest rates,"
International Finance Discussion Papers
840, Board of Governors of the Federal Reserve System (U.S.).
- Francis E. Warnock & Veronica C. Warnock, 2005. "International Capital Flows and U.S. Interest Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp103, IIIS.
- Francis E. Warnock & Veronica Cacdac Warnock, 2006. "International Capital Flows and U.S. Interest Rates," NBER Working Papers 12560, National Bureau of Economic Research, Inc.
- Shirai, Sayuri, 2009. "Evaluating the Present State of Japan as An International Financial Center," MPRA Paper 14720, University Library of Munich, Germany.
- Shirai, Sayuri, 2009. "The Impact of the US Subprime Mortgage Crisis on the World and East Asia," MPRA Paper 14722, University Library of Munich, Germany.
- Nouriel Roubini & Brad Setser, 2005. "Will the Bretton Woods 2 regime unravel soon? the risk of a hard landing in 2005-2006," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:18619. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.