Currency and Competitiveness in Europe
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Currency and Competitiveness in Europe

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

This book combines currency matters with competitiveness considerations, with a view to raising the understanding of exchange rate dynamics and to analysing the role of exchange rates in reinforcing economic competitiveness.
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Chapter 3: Are Global Imbalances a Problem?

John Williamson


John Williamson1 Everyone agrees that the global imbalances are today very large. There is also quite a wide measure of agreement on what would need to be done to rein them in: rebalance world demand by a shift from the United States to East Asia; appreciate most of the currencies of East Asia in effective and bilateral terms and accept bilateral appreciations against the dollar (but not significant – or maybe any – appreciations in effective exchange rates) in the rest of the world. Where there is strong disagreement is on whether it is desirable to take measures designed to secure reasonably prompt adjustment. There is a school of thought that maintains that any cure for the global imbalances would be worse than the disease, and that the best course of action is to do nothing. While I am not an adherent of this position, I nevertheless believe it to be important to understand the ‘do nothing’ view, and the dangers that come from allowing it to continue to dominate policy. I also believe that we can learn important lessons about what are and are not real problems by examining the arguments of those who hold this view. That is why it forms the subject of this chapter. I start by laying out a version of the opposing view. I then examine several of its arguments in detail: ● ● ● the view that on present trends a gradual adjustment is likely, or else that the market will automatically induce a gradual...

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