Apart from the fact that this would reduce the risk of a new international crisis, it would mean that a larger part of global demand would come from those countries that currently have a surplus, for example China, and a smaller part from the United States. It is difficult to know, however, what impact this would have on the demand for Swedish export goods. To the extent that Chinese households and companies demand different types of goods than households and companies in the United States, this largely depends on whether Swedish companies are flexible enough to adapt their production to meet changes in the pattern of demand. The Asian countries that have surpluses are a long way from Sweden and geo-graphical distance is a factor that has a clear negative link to the propensity of countries to trade with each other. 26 However, there are countries with substantial surpluses that are close to Sweden, for example Germany. It is therefore not obvious what the overall impact would be on the demand for Swedish exports if there was a general reduction in current account surpluses and deficits. It is also conceivable that the United States would import more investment goods if its current account deficit decreased, as this would probably entail an expansion of the export-oriented industrial sector at the expense of the more domestically-oriented service sector. This in turn would entail an increased demand for the type of industrial goods that Sweden exports quite a lot of.
The effective exchange rate index measures how the currency relates to a basket of other currencies that are weighted in terms of their relative importance to trade. The real index is also adjusted for relative differences in the CPI. A downward movement in the figure entails a strengthening of the exchange rate. Source: Reuters EcoWin  This put some emerging economies with a floating exchange rate in an awkward position as they did not want to lose too much competitiveness in relation to China while at the same time large capital inflows tended to strengthen their exchange rates. The G20 has now agreed that in certain situations it may be justified to introduce temporary capital regulations to protect against volatile capital flows. The view is that in normal cases a country should use monetary or fiscal policy, or tools for macro prudential supervision, but that in exceptional cases it may be appropriate to introduce measures to control capital. Work is underway to set up common guidelines. 15 Why does Sweden have such a large current account surplus? Prior to the crisis of the 1990s, it was usual for Sweden to have current account deficits for long periods of time (see Figure 4). After the crisis the krona weakened substantially at the same time as the deficit became a surplus. Since then, Sweden has not only had a surplus, it has had a very substantial and, to a certain extent, a growing surplus.