But we don't live in an ideal world. Domestic labour markets in Europe and Asia are not very flexible, and reallocation of labour resources is difficult. Domestic fiscal and social policies often stifle investment and encourage excessive savings in some parts of the world and overstimulate consumption in others.
And there are still persistent impediments to the free flow of goods and services across borders. Meanwhile, some domestic banking sectors and capital markets continue to operate under rigid and inefficient regulations. And some important economies, particularly in Asia, are maintaining undervalued exchange rates through exchange market interventions and capital controls. In the process, they are accumulating excessive reserves.