Most of the economists argue that, due to serious Global Imbalances, a major realignment of world's major currencies must take place. Critically evaluate this point of view.

Essay by madzUniversity, Master'sB+, February 2007

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From last three years world economy is growing on a decent pace except Global Account Imbalances reaching the levels that are unprecedented. On one side Current account deficit of US $665 billion in 2004 which move up to, $820 billion or you can take it in this way that 6% of GDP in 2005 and its predicted to reach $900 billion in 2006. On other side accumulation of foreign exchange reserves in Emerging Asian and oil exporting countries is very rapid.

United States as a one particular symbol his power dragging all the global economy after it. Other Asian countries like China, Japan etc have been helping this by keeping their currencies artificially low in front of US dollar, causing America to buy goods from Asia very expensively. We can also consider current account deficit and low exchange rate in a way that Americans are using Asian's money to buy Asian products.

A deficit in the current account (the difference between the goods and services you buy & the goods and services you sell to other countries) must be accompanied by the surplus in the capital account (the amount of money which you lend to people minus the money other people lend you). The value of Asians currencies would rise and value of US currency ($) will fall if people buy more & more Asian currencies to buy goods, and it will help the deficit to move back towards balance progressively. But Asian Central Banks are not letting it to be done, by keeping the value of their currencies low in front of dollar, which helps in getting high demand. The only way that Asian countries can keep their currencies underestimated is to keep trading Yen or Yuan or won for dollars, thus pushing up the relative price of...