The case against persistent global imbalances

I ENJOYED reading professor Joergen Oerstroem Moeller's insightful recent article on global imbalances (BT, Dec 3). However, I must respectfully disagree with my dear friend's suggestion that persistent global imbalances may not be such a bad thing for the global economy. True, if global citizens are aware of the implications of persistent global imbalances, governments around the world will be pressured to do everything conceivable to avoid highly negative potential outcomes, but that is not a good case for complacency.

The classic argument is that the Chinese and Japanese governments are incentivised to keep buying US Treasury bonds, to avoid hurting US dollar-denominated assets that they are already holding. With the recent scrapping of the 20,000 yuan (S$4,300) daily conversion limit, the Chinese yuan is currently in some form of semi-convertibility, with free floatation being the only eventual outcome. However, please don't expect the Chinese to recycle indefinite amounts of US dollars to buy US Treasuries through their sterilisation p…