Global imbalances through the prism of savings and investment

The so-called ‘global imbalances’, their source and remedy have been a frequent topic of debate through the years leading up to the global financial crisis and more recently. This article contends that the debate should focus less on the role of the exchange rate in influencing trade flows, and more on savings and investment imbalances. In particular, the reasons behind the ‘uphill’ flow of capital deserve greater consideration. A long-term solution to the global imbalances will require not only some exchange rate adjustments, but also changes to saving and investment patterns in both surplus and deficit countries. This is achievable, but it will not be an overnight process.