Global Current Account Balances Widen, Reversing Narrowing Trend

Second, the recent escalation of trade tensions coupled with the threat of possible financial tensions, rising US debt levels and a softening of the US exorbitant privilege may have caused some global investors to reassess the extent of their dollar exposure. So far, markets developments have been orderly, with an increase in demand for dollar hedg

Our report further documents a growing asymmetry in global trade and financial networks. Under the umbrella of a stable dollar-centered IMS, countries have been able to deepen their specialization in trade or finance. For instance, between 2001 and 2023 China and the United States present opposite patterns with China becoming increasingly central i

This dominance helped sustain global demand for dollar reserve assets. On the one hand, this has allowed the US to borrow more and at lower cost, generating sizable excess returns on external claims relative to external liabilities (the “exorbitant privilege” of the dollar). But it has also increased the exposure of the US external position to glob

In a stark contrast, our report shows that higher tariff barriers in deficit countries like the United States only have a minor impact on global imbalances. This is because tariffs act as a negative supply shock in the tariffing countries. They reduce both investment, which is less profitable, and savings to smooth the income shock—leaving current

Accordingly, the correct remedies should be rooted in domestic macroeconomic policies. For Europe, this means spending more on public infrastructure to close the productivity gap that opened with the United States. For China, it means rebalancing economic activity towards consumption. For the United States, it means pursuing fiscal consolidation

Often, excessive deficits or surpluses reflect domestic distortions -for instance overly loose fiscal policy in deficit countries, or insufficient safety nets that cause excessive precautionary savings in surplus economies. Assessing excessive current accounts requires a comprehensive analysis of the fundamental determinants of national savings and

It is important to note at the outset that external surpluses or deficits need not be a problem and can be desirable to a degree. For instance, it is desirable for young or rapidly growing economies to finance part of their economic development with foreign capital. Conversely, older or less dynamic economies may need to save more and can obtain hi

Global current account balances widened by a sizable 0.6 percentage points of world GDP in 2024. When adjusted to account for the volatility around the pandemic and Russia’s war in Ukraine, the widening is a notable reversal of the narrowing since the global financial crisis and may signal a significant structural shift.