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Global Financial Imbalances: The Future Impact of Asian and Middle East Surpluses
Karen Johnson
April 24, 2006
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Exchange Rates: Chinese RMB
Source: FRB weights
0.118
0.120
0.122
0.124
0.126
0.128
1995:1 1996:1 1997:1 1998:1 1999:1 2000:1 2001:1 2002:1 2003:1 2004:1 2005:1 2006:1
US
do
llars
/RM
B
50
60
70
80
90
100
110
120
130
140
150
rea
l eff
ec
tiv
e (
19
95
:Q1
= 1
00
)
US dollars/RMB
real effective RMB
real effective dollar
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Exchange Rates: Korean Won
Source: FRB weights
0.0004
0.0006
0.0008
0.0010
0.0012
0.0014
1995:1 1996:1 1997:1 1998:1 1999:1 2000:1 2001:1 2002:1 2003:1 2004:1 2005:1 2006:1
US
do
llars
/wo
n
50
60
70
80
90
100
110
120
130
140
150
rea
l eff
ec
tiv
e (
19
95
:Q1
= 1
00
)
US dollars/won
real effective won
real effective dollar
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Exchange Rates: Japanese Yen
Source: FRB weights
0.004
0.006
0.008
0.010
0.012
0.014
1995:1 1996:1 1997:1 1998:1 1999:1 2000:1 2001:1 2002:1 2003:1 2004:1 2005:1 2006:1
US
do
llars
/ye
n
50
60
70
80
90
100
110
120
130
140
150
rea
l eff
ec
tiv
e (
19
95
:Q1
= 1
00
)
US dollars/yen
real effective yen
real effective dollar
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Current Account Balance (% of GDP)
Source: IMF WEO
0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005
Pe
rce
nt
of
GD
P
Developing Asia
China
Japan
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Current Account Balance (% of GDP)
Source: IMF WEO*Hong Kong, Korea, Singapore, Taiwan
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005
Pe
rce
nt
of
GD
P
Newly industrialized Asian economies*
Korea
Taiwan
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Global Oil Prices (WTI)
Source: Commodity Research Bureau
0
20
40
60
80
2000:1 2001:1 2002:1 2003:1 2004:1 2005:1 2006:1
do
llars
/ba
rre
l
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Revenue Flows to Fuel Exporters
Source: IMF WEO
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005
$ b
illio
ns
Oil trade balance
Current account balance
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Foreign Exchange Reserves
Source: IMF*Indonesia, Malaysia, Philippines, Singapore, Thailand, Hong Kong
OtherAsia*
OtherAsia*
OtherAsia*
OtherAsia*
OtherAsia*
OtherAsia*
KoreaKoreaKorea
Korea Korea Korea
Japan JapanJapan
Japan
Japan Japan
ChinaChina
China
China
China
China
0
500
1000
1500
2000
2500
2000 2001 2002 2003 2004 2005
$ b
illio
ns
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Foreign Exchange Reserves:Aggregate of Fuel Exporters
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
0
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004 2005**
$ b
illio
ns
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Portfolio Inflows to the United States
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
Japan Japan
Japan
Japan
Japan
JapanChina
China
China
China
China
China
-100
0
100
200
300
400
500
$ b
illio
ns
ChinaJapanKoreaOther Asia*Middle East**Russia
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Inflation: Consumer Prices
Source: IMF WEO
-2
0
2
4
6
8
10
12
14
16
an
nu
al p
erc
en
t c
ha
ng
e
Developing Asia China
Fuel Exporters
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Gross Issuance of Chinese Sterilization Bonds
Source: Bloomberg
0
10
20
30
40
50
60
70
Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06
$ b
illio
ns
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Distortions
Implicit subsidy to exports
Distort allocation of domestic fixed investment
Continue to attract capital inflow
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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