Global Imbalances and Currency Politics: China, Europe, and the United States

Global Imbalances and Currency Politics: China, Europe, and the United StatesAt the core of contemporary international macroeconomic policy problems is a new “G3” comprised of China, the European Union (EU) and the United States (US). This group shares some characteristics with the earlier G3 of Japan, Germany and the US that so dominated the political economy of global macroeconomic imbalances in the 1970s and 1980s. The new G3 is even more weakly institutionalized than its predecessor and is also visibly lopsided, reflecting considerable economic and political asymmetries between the three players. It distributes costs and benefits very unevenly between and within the major blocs and is consequently highly contentious. The new G3 also has some important differences with the old, notably the novel presence of a major developing country member and an imperfectly integrated regional association. Both factors, I suggest, considerably complicate the process of macroeconomic policy coordination within and beyond the G3. The first factor has received most attention, especially in the contention of some commentators that China has been deliberately manipulating its exchange rate to obtain a competitive advantage, that its policies have been responsible for the emergence of large payments imbalances, and that China refuses to play by the established rules of the game (e.g. Bergsten 2008; Wolf 2009). The second factor has received much less attention, but recent evidence suggests that despite the growing importance of the euro as a global currency and of the euro area in global commerce, the EU also remains poorly equipped to play a constructive role in global macroeconomic policy coordination. For these and other reasons, I argue that it is not
surprising that recent attempts to revive international macroeconomic policy coordination have proven disappointing.


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