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Global Financial Imbalances:
The Future Impact of Asian and
Middle East Surpluses
Karen Johnson
April 24, 2006
Exchange Rates: Chinese RMB
0.128
150
140
0.126
130
US dollars/RMB
120
0.124
110
real effective dollar
100
0.122
90
US dollars/RMB
80
0.120
70
60
0.118
1995:1
Source: FRB weights
1996:1
1997:1
1998:1
1999:1
2000:1
2001:1
2002:1
2003:1
2004:1
2005:1
50
2006:1
real effective (1995:Q1 = 100)
real effective RMB
Exchange Rates: Korean Won
0.0014
150
140
US dollars/won
0.0012
130
US dollars/won
120
0.0010
110
100
0.0008
90
80
0.0006
70
60
real effective won
0.0004
1995:1
Source: FRB weights
1996:1
1997:1
1998:1
1999:1
2000:1
2001:1
2002:1
2003:1
2004:1
2005:1
50
2006:1
real effective (1995:Q1 = 100)
real effective dollar
Exchange Rates: Japanese Yen
0.014
150
140
real effective dollar
130
US dollars/yen
120
0.010
110
100
US dollars/yen
0.008
90
80
real effective yen
0.006
70
60
0.004
1995:1
Source: FRB weights
1996:1
1997:1
1998:1
1999:1
2000:1
2001:1
2002:1
2003:1
2004:1
2005:1
50
2006:1
real effective (1995:Q1 = 100)
0.012
Current Account Balance (% of GDP)
8
China
7
6
Percent of GDP
5
4
Japan
3
Developing Asia
2
1
0
2000
Source: IMF WEO
2001
2002
2003
2004
2005
Current Account Balance (% of GDP)
12
10
Taiwan
Percent of GDP
8
6
Newly industrialized
Asian economies*
4
Korea
2
0
2000
2001
Source: IMF WEO
*Hong Kong, Korea, Singapore, Taiwan
2002
2003
2004
2005
Global Oil Prices (WTI)
80
dollars/barrel
60
40
20
0
2000:1
2001:1
Source: Commodity Research Bureau
2002:1
2003:1
2004:1
2005:1
2006:1
Revenue Flows to Fuel Exporters
700
600
500
$ billions
Oil trade balance
400
300
200
Current account balance
100
0
2000
Source: IMF WEO
2001
2002
2003
2004
2005
Foreign Exchange Reserves
2500
2000
China
China
$ billions
1500
China
China
1000
Japan
Japan
Korea
Korea
China
Japan
China
Japan
Japan
Japan
500
Korea
Korea
Korea
Korea
Other
Asia*
Other
Asia*
Other
Asia*
Other
Asia*
Other
Asia*
Other
Asia*
2000
2001
2002
2003
2004
2005
0
Source: IMF
*Indonesia, Malaysia, Philippines, Singapore, Thailand, Hong Kong
Foreign Exchange Reserves:
Aggregate of Fuel Exporters
400
350
300
$ billions
250
200
150
100
50
0
2000
2001
2002
2003
2004
2005**
Source: IMF
*No data available for Turkmenistan, Iran, Iraq, or Syria
**2005 data not yet available for Angola, Rep. of Congo, Equatorial Guinea, Gabon, Sudan, Bahrain, UAE, or Yemen
Portfolio Inflows to the United States
500
400
China
Japan
Korea
Other Asia*
Middle East**
Russia
China
300
$ billions
China
Japan
200
China
China
Japan
Japan
China
100
China
Japan
Japan
Japan
-100
Source: Treasury International Capital System (www.treas.gov/tic/index.html)
*Indonesia, Malaysia, Philippines, Singapore, Thailand, Hong Kong
**Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, UAE
20
05
20
04
20
03
20
02
20
01
20
00
0
Inflation: Consumer Prices
16
14
12
Fuel Exporters
annual percent change
10
8
6
4
Developing Asia
China
2
-2
Source: IMF WEO
20
05
20
04
20
03
20
02
20
01
20
00
0
Gross Issuance of
Chinese Sterilization Bonds
70
60
$ billions
50
40
30
20
10
0
Apr-03
Source: Bloomberg
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Distortions

Implicit subsidy to exports

Distort allocation of domestic fixed
investment

Continue to attract capital inflow
Downside of Reserve Accumulation

Complications posed for monetary policy

Distortions on bank behavior

Limits on financial sector development

Price signals altered by the exchange rate