Global imbalances pose threat of economic disruption: Dodge
Last Updated Mon, 06 Feb 2006 10:44:31 EST
CBC News
The world economy faces possible disruption without urgent action to correct global imbalances, the Bank of Canada's governor said Monday.
Such imbalances include the U.S. current account deficit and growing surpluses in some Asian and oil-exporting countries, David Dodge says in a speech for delivery to the Barbados International Business Association.
Bank of Canada governor David Dodge (CP file photo)
Dodge said that while international capital flows are the lifeblood of the global economy, the huge financial flows into the United States are not sustainable indefinitely.
A sudden increase in domestic savings in the U.S. could bring a sharp slowdown in global economic growth unless there is a corresponding growth in domestic demand in other countries, he said.
"Such a slowdown in growth, in turn, raises the risk that policy-makers might resort to protectionism," Dodge said. "In that event, a period of very slow growth could, perhaps, be punctuated by periods of outright recession."
Dodge said while correcting imbalances requires a global effort, "problems have arisen from countries not playing by the rules of the game."
Certain Asian countries with fixed exchange rates and current account surpluses have acted to "sterilize" foreign exchange interventions by offsetting the effect of interventions on the domestic money supply, he said.
By doing so, Dodge said, they are delaying both domestic and global economic adjustment.
"Just as worrying is the fact that such intervention is provoking threats of protectionist measures in certain political quarters," he said. "Such wrong-headed measures could choke off the growth of international trade that has led to rising incomes worldwide."
Dodge called for a commitment by all countries to a renewed international monetary order and a willingness to play by the rules.
"Imbalances are persisting, and if they aren't resolved in an orderly way, we face the threat of great disruption." |
