Global imbalances

Global imbalances refers to the situation where some countries have more assets than the other countries. In theory, when the current account is in balance, it has a zero value: inflows and outflows of capital will be cancelled by each other. Hence, if the current account is persistently showing deficits for certain period it is said to show an inequilibrium. Since, by definition, all current accounts and net foreign assets of the countries in the world must become zero, then other countries become indebted with the other nations.During recent years, global imbalances have become a concern in the rest of the world. The United States has run long term deficits, as well as many other advanced economies, while in Asia and emerging economies the opposite has occurred. Global imbalances refers to the situation where some countries have more assets than the other countries. In theory, when the current account is in balance, it has a zero value: inflows and outflows of capital will be cancelled by each other. Hence, if the current account is persistently showing deficits for certain period it is said to show an inequilibrium. Since, by definition, all current accounts and net foreign assets of the countries in the world must become zero, then other countries become indebted with the other nations.During recent years, global imbalances have become a concern in the rest of the world. The United States has run long term deficits, as well as many other advanced economies, while in Asia and emerging economies the opposite has occurred. They refer to global imbalances as 'external positions of systemically important economies that reflect distortions or entail risks for the global economy'. The three parts of this definition can be re-defined further: