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Financial turmoil and global imbalances: the end of Bretton Woods II?

Author

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  • Chris Hunt

    (Reserve Bank of New Zealand)

Abstract
Since August 2007, the global economy has been subject to a sharp and adverse financial shock, with re-pricing of risk and higher cost of funds. This article argues that this shock is a consequence of an unsustainable period of global economic growth involving very large external imbalances. These imbalances – large current account surpluses in many emerging markets matched by current account deficits (CADs) in a number of advanced economies – contributed to an unsustainable cheapening of credit and increased risk-seeking behaviour by financial markets. The development of the imbalances can be explained by financial underdevelopment in many emerging markets, together with particular savings and investment dynamics across the surplus and deficit countries. These factors established ‘Bretton Woods II’, a global macro-financial dynamic that tied the deficit and surplus economies together in a co-dependent relationship. The current credit crisis appears to mark the limits of this relationship. However, the precise nature of any subsequent adjustment in global imbalances is not immediately clear.

Suggested Citation

  • Chris Hunt, 2008. "Financial turmoil and global imbalances: the end of Bretton Woods II?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, September.
    • Handle: RePEc:nzb:nzbbul:september2008:6
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2008/2008sep71-3hunt.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kenc, Turalay & Dibooglu, Sel, 2010. "The 2007-2009 financial crisis, global imbalances and capital flows: Implications for reform," Economic Systems, Elsevier, vol. 34(1), pages 3-21, March.
    2. Naphon Phumma, 2014. "Neoliberalism and the global imbalances: the neo-Gramscian approach," Working Paper Series, Department of Economics, University of Utah 2014_04, University of Utah, Department of Economics.
    3. Òscar Jordà & Moritz Schularick & Alan M Taylor, 2011. "Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(2), pages 340-378, June.
    4. Paul Bedford, 2008. "The global financial crisis and its transmission to New Zealand – an external balance sheet analysis," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, December.
    5. Michael Dooley & David Folkerts‐Landau & Peter Garber, 2009. "Bretton Woods Ii Still Defines The International Monetary System," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 297-311, August.
    6. Schularick Moritz, 2010. "Touching the Brakes after the Crash: A Historical View of Reserve Accumulation and Financial Integration," Global Economy Journal, De Gruyter, vol. 9(4), pages 1-13, January.
    7. Jean-Pierre Andre, 2011. "Economic Imbalances: New Zealand's Structural Challenge," Treasury Working Paper Series 11/03, New Zealand Treasury.
    8. Tai-Kuang Ho & Kuo-Chun Yeh, 2014. "The Post-Asian Crisis Drop In Investment: The Cases Of Indonesia, Korea, Malaysia, And Thailand," Contemporary Economic Policy, Western Economic Association International, vol. 32(3), pages 618-638, July.
    9. Ashby H B Monk, 2011. "Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance," Environment and Planning A, , vol. 43(8), pages 1813-1832, August.

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