Global Imbalances and Regional Economic Integration in East Asia

Although the expression “global imbalances” comprises the word global, most contributions to this topic have centred on the bilateral imbalances between the US and China, and the Chinese dollar peg as an underlying factor in particular. Given that the US has the world’s largest current account deficit and China the largest current account surplus, this bilateral focus is understandable. However, it is helpful to take a broader perspective when discussing the underlying factors contributing to the Sino-American imbalances, especially when thinking about possible solutions to the problem. This brief note discusses the development of the East Asian trade-production network as one of the underlying reasons for China’s current account surplus and the role that regional economic cooperation in East Asia, including regional monetary cooperation, can play in reducing global imbalances.