While much has been done to reform the financial system, seven years after the crisis the faultlines in the international monetary system remain more or less as they were. We live with arrangements that lead to persistent international imbalances in the pattern of spending, saving and investment. When trouble hits one country, it quickly spreads abroad.
How can we maintain the benefits of floating exchange rates and cross-border flows of capital without such serious costs? Realistically, there is little we can do about the imbalances. Throughout history there have been nations that saved less than they invested, which resulted in current account deficits. There have been nations that spent less, building up savings and current account surpluses. But the savers have never shown much interest in reducing their surpluses at a pace desired by other countries, seeing that as the duty and need of the debtors.
What can be mitigated is the tendency for crises to spill across borders. The International Monetary Fund’s triennial review of how it monitors economic and financial risks and policies – to which I have contributed, along with my colleague David Li of Tsinghua University – provides an opportunity to do just that.