Global imbalances: links to economic and financial stability: a speech at the Banque de France Financial Stability Review Launch Event, Paris, France, February 18, 2011

By facilitating the allocation of the world’s savings to the most productive uses, the free flow of capital across national borders confers substantial economic benefits, including the promotion of economic growth. That said, we have seen a number of episodes in which international capital flows have brought with them challenges for macroeconomic adjustment, financial stability, or both. Such challenges have tended to arise in two situations: first, when the “rules of the game” of the international monetary system – the policy responses that countries are expected to take to help foster a balanced global economy over time – are either poorly articulated or not observed by key countries; and second, when the financial systems of nations receiving strong capital inflows have not been up to the task of investing those inflows productively.