Rebalancing global economy

By Zhang Monan

China Daily, February 24, 2011

The US-led Western countries' advocacy of revising the way that current accounts are measured fully exposes their attempts to shift the responsibilities for the global economic imbalances to countries with a trade surplus.

Global economic imbalances are in essence a result of the imbalances in global comparative labor advantages among different countries. There are two major labor divisions in the current global economy, namely in trade and finance.

The first category is mainly represented by Germany, Japan and China, all big commodity exporters that hold a huge current account surplus, and the second is represented by the US and some European countries that enjoy huge financial advantages in exporting capital and various kinds of financial products and services that contributed to their huge current account deficits.

While the global manufacturing sector has shifted from developed countries to emerging markets, developed economies still firmly retain their status as the world financial centers. Developing countries, due to their less-developed financial markets and vulnerable financial systems, have to employ established reserve currencies for their overseas trade pricing, settlements, lending and investments. As a result, emerging economies have to sustain bigger exchange rate and assets risks.

The huge current account deficit of the US is a reflection of the current skewed international monetary order. As of Jan 31, 2011, the total US public debt was $14.13 trillion, 96.4 percent of the country's 2010 GDP of $14.7 trillion. By taking advantage of its long-established monetary dominance, the US has a long history of credit abuse and its trade and fiscal deficits have increased far faster than production. The volume of US national debts held by foreign countries and regions has kept rising over the past decade and it has issued 32 percent of the world's total bonds.

However, Washington has skillfully utilized the dollar as the world's leading reserve currency for overseas financing of its national debts and promoted their international circulation to the US' advantage.