Global imbalances

Current account surpluses run by Britain, Germany, France and the Netherlands reached approximately 9% of GDP, while for the destination of the flows (Argentina, Australia and Canada) the deficit exceeded 5%.

[2] The process of adjustment of these imbalances relates to the price specie flow mechanism of the classical gold standard, which was smooth, in general, with exception of the Barings Crisis in 1890 for some countries.

During the First World War, the participating countries abandoned gold convertibility, with exception of the United States.

[3] The collapse began after 1929: speculative attacks on countries following expansionary policies to alleviate the effects of the Great Depression, and soon had to leave the gold standard.

Also, the foreign asset positions have become much larger in both gross and net terms, and the degree of capital mobility is the highest in decades.

The essential requirement to make large global imbalances in world, is the monetary globalisation or, in other words, freeing and opening the financial markets.

In some advanced countries, such as Germany, Japan and New Zealand, the ageing issue has been a very important factor increasing the amount of the savings.

For this reason, many countries have decided to invest those assets abroad, in the more financially developed countries, such as the United States and the United Kingdom, in the form of Sovereign Wealth Funds, portfolio investments and foreign reserves, indicating the existence of shortages in safe assets as well.

It also helped in the increase of leverage in advanced economies, and the formation of the housing market bubble in many of them, through the relaxed credit conditions.

[12] Even though many of the policies adopted or discussed since the beginning of the Great Recession, have centred on the sectors of Finance, Housing and Public Debt, among other issues, the presence of Global Imbalances still remains as a factor, that although reduced, points out the need of reforms of the international monetary and financial system to correct the imbalances, and hence, the distortions and market imperfections that gave them origin in first place.