Global Imbalances, the International Crisis and the Role of the Dollar

The paper investigates the links between international global imbalances and the recent international financial crisis. It also focuses on the asymmetries of the dollar standard exchange rate regime. Global imbalances preceded the crisis but were one of the ingredients that led to the financial crash of 2007-2008. The paper rejects the ‘saving glut' explanation of the US trade deficit and shows that the key role of the dollar in the international monetary system allows the USA to exert seignorage in the international economy and created a circuit where Asian and oil-producing countries financed the US deficit. The inflow of foreign capitals increased the US domestic credit supply contributing to the development of the sub-prime bubble. The paper concludes that only the creation of a supranational monetary authority can eliminate the dangers of the asymmetric dollar standard regime.