854. Global Financial Imbalances

US Current Account Deficit Financing

In this speech, Rachel Lomax, Deputy Governor responsible for monetary policy, discusses the implications of the global financial imbalances for the current international monetary system. Given their already substantial reserve holdings, Asian central banks are unlikely to continue financing an increasing US current account deficit indefinitely. While the risk of disruptive adjustment may still be low, the sheer scale of current imbalances increases the potential costs of policy mistakes and misperceptions. To minimise this risk, there is a need for clear policy communication and policies that are robust to the possibility of market expectations being inconsistent with economic fundamentals. The increased international interdependency in today’s world also underlies the need to greatly improve the standard of dialogue on international economic issues.

Rachel Lomax - Bank of England - Monetary Policy Committee

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