BIS 75th Annual Report
VIII. Conclusion: how might imbalances be fixed?

27 June 2005

While the global economy performed very well in the fiscal year ending March 2005, worrisome signs began to emerge reminiscent of the inflationary pressures that built up in the late 1960s. Fortunately, closer analysis reveals enough differences, and lessons drawn from that earlier period, to conclude that history is not likely to repeat itself. Yet these differences give some hints about the likely nature of future problems. Internal and external imbalances, rooted in major structural changes in the global economy, could unwind with a potentially disruptive impact. What might seem evident policy solutions for each country considered alone often stand in mutual contradiction. This raises the issue of whether cooperative solutions might not have a role to play in current circumstances. Those who worry about the unwelcome interaction of otherwise desirable structural changes ask whether the policy framework might not also have to be modified in response. Suggestions can be made as to how both a domestic and an international macrofinancial stabilisation framework could be put into operation. Given the reality of vested sovereign interests, however, an international framework will be much harder to implement.