They are a natural reflection of financial integration. They provide flexibility to savers and investors. By that, they are welfare enhancing. However, very large current account deficits, when persistent and growing, fuel concerns of external sustainability. Two main risks to the international community have been extensively debated for almost a decade.
First, sustainability concerns may lead to a sudden collapse of confidence in the ability of the deficit countries to maintain their external positions. The resulting disruptive adjustment would be harmful for the deficit and surplus countries alike and to the bystander countries as well.