Global Imbalances and the US Debt Problem: Should Developing Countries Support the US Dollar?


A book that analyses how the ballooning foreign debt problem of the United States and the problem of increasing global economic imbalances are related, how these problems should be addressed and by whom.

Contributing authors provide deep insights and practical policy suggestions of what can be done to lessen the vulnerability of developing countries and contribute to a resolution of the US debt and global imbalances problems.

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The growing and staggering foreign debt of the United States is one of the pressing issues of our days. So is the problem of large global economic imbalances. This book analyses how these two problems are related, how they should be addressed and by whom.

In assessing the risks of a dramatic unwinding of US debt and global imbalances, the negative impact on developing countries usually receives little attention. This book is different – it focuses primarily on developing countries.

The contributing authors look at the functioning of the world economic system as a whole and at the policies pursued in both the developed and developing regions of the world. They urge the US to reduce its deficits, and suggest what developing countries and the international community can do to lessen the vulnerability of developing countries and contribute to a resolution of the US debt and global imbalances problems.

According to some of the contributors, the fundamental problem lies in a global monetary system that maintains the US dollar as the key currency. This allows the US to run high deficits and it prolongs a situation in which capital flows “uphill” – from poor countries to the richest country of the world. They see a reform of the international monetary system that ends the hegemony of the dollar as the best solution. Other contributors observe that as long as both Asia and Europe continue to use positive net exports to support their domestic policy goals, they will continue to finance US deficits.

The book devotes considerable attention to China’s role in the global imbalance problem. It investigates whether there are good reasons for placing so much blame on China, and concludes that the focus on the bilateral balance between China and the United States is exaggerated and misleading.


“It would be nice if the United States would participate in a process of cooperative policy adjustment by addressing the domestic roots of its twin deficits. But emerging markets cannot afford to wait for the US to act.” Barry Eichengreen, University of California, Berkeley and Yung Chul Park, Seoul National University

 “The US dollar is no longer a stable anchor in the global financial system, nor is it likely to become one: thus it is time to look for alternatives.” Fan Gang, China Reform Foundation

“It is misleading – and perhaps even dangerous – to make projections about emerging market economies as a whole. At a minimum, we need to distinguish the successful East Asian economies from others.” Barbara Stallings, Watson Institute, Brown University

“A major risk for the world economy – and for developing economies – is an abrupt unwinding of global imbalances. The scale of the US deficit, its rapid growth and that of US net liabilities, make the problem an increasing source of concern.” Jane D’Arista, Financial Markets Center and Stephany Griffith-Jones, Institute of Development Studies, Sussex University

“The widespread international attention on the value of the (Chinese) yuan is possibly the first time in international monetary history that the value of the currency of a developing country has so greatly exercised the finance ministries and central banks of the largest developed countries.” Wing Thye Woo, University of California and Brookings Institution

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December 2006
ISBN-10: 90-74208-28-2
ISBN-13: 978-90-74208-28-4

197 pages

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