Arvind Subramanian and Martin Kessler's latest piece titled "Hyperglobalisation of Trade and Its Future" on globalisation and the way forward looks like an exhaustive account of the present nature of globalisation. A must read for a comprehensive account.
It highlighted 7 important ingredients of present day globalisation:
hyperglobalization (the rapid rise in trade integration)
the dematerialization of globalization (the importance of services)
democratic globalization (the widespread embrace of openness)
criss-crossing globalization (the similarity of North-to-South trade and investment flows with flows in the other direction)
the rise of a mega-trader (China), the first since Imperial Britain
the proliferation of regional trade agreements and the imminence of mega-regional ones
- the decline of barriers to trade in goods but the continued existence of high barriers to trade in services.
The piece has a bit about undervaluation and trade, an issue I have touched upon constantly in this blog.
"Currency wars or the resulting global imbalances are a systemic problem only if one or a few large countries pursue them. The possibility of collective action to prevent them must take account of this reality.
A trade dispute, perhaps, will find a solution? My dear friend, Gulzar, had earlier commented on this issue thus:
Exchange rates and foreign exchange intervention are centrally implicated in mercantilism. The international monetary system, under the auspices of the IMF, is therefore the best forum in which to find a solution. The prospects for any serious reform remain slim, however, because of the inherent limits to international monetary cooperation."
"If forex mkt policies have to be regulated, by WTO or some other agency, then what form should it take?
I am asking this because, unlike directly trade related issues like tariffs etc, exchange rate policies are very closely inter-twined with monetary policy and policies that regulate external capital flows (the impossible trinity). these three form the three pillars of any macroeconomic stabilization policy that open economies follow.
Regulating one, would effectively (in a very direct sense) mean regulating the other two. it is a very small distance for us to be talking about regulating monetary policy itself. we need to remember that currency devaluations (which by definition has a beggar-thy-neighbour dimension) have been a commonly used critical policy instrument for regaining external competitiveness by countries. in fact, the biggest criticism of the eurozone experiment is that it denied countries the flexibility to devalue their way out of a sovereign debt and external competitiveness crisis.
By the same logic, we should be arguing even more vehemently about regulating monetary policy itself, since the extraordinary monetary accommodation that the developed economies have been following for the past five years has done much more damage to the world economy (it has had strongly destabilising influence on emerging markets) than anything in the forex markets..."No readymade answers on this one, but more food for thought.