Presentation in a session "Asia, the US Dollar and Global Imbalances"

Speech by Malcolm D Knight, General Manager of the BIS, at the Brussels Economic Forum, Brussels, 18 May 2006.

Good morning. It is a privilege to be part of the Brussels Economic Forum and to speak before this distinguished audience. The subject of this session "Asia, the US Dollar and Global Imbalances" is certainly interesting and topical. In my view, three key questions need to be answered to address it.

First, is the present highly unusual pattern of global current account imbalances sustainable over the longer term? Economists have been warning about the potential risks from global imbalances for several years. And yet these imbalances are still with us. Nonetheless, I will argue that they clearly represent a disequilibrium: they are not sustainable in the longer term. The second issue follows from the first: If these global imbalances are not sustainable, what has kept them going all these years?

The third question is about the inevitable adjustment. What should policymakers be doing to ensure that the process of adjusting global imbalances inevitable international adjustment process, when it takes place, is orderly and consistent with continued satisfactory global growth and inflation performance?

Why do I think that external imbalances represent a longer-term disequilibrium?