The first is the role of exchange rates in global rebalancing. The second relates to capital flows into EMEs raising the familiar challenge of managing the impossible trinity. And the third facet is the framework for the adjustment process. Let me turn to these one by one. First, on the role of exchange rates – a prime lever for redressal of external imbalances.
Global rebalancing will require deficit economies to save more and consume less. They need to depend for growth more on external demand which calls for a real depreciation of their currencies. The surplus economies will need to mirror these efforts – save less and spend more, and shift from external to domestic demand. They need to let their currencies appreciate.