Global imbalances: the international monetary system and financial stability.

Understanding the link between global macroeconomic imbalances and financial stability is critical not only for understanding the recent financial crisis, but also for what could happen next. The imbalances and financial vulnerabilities that plagued the global economy before the crisis have begun to re-emerge. In a context of deficient global demand and exceptionally low interest rates in many countries, one likely result is excessively risky behaviour in the financial sector. A failure to resolve global disequilibria will ultimately undermine the global recovery and financial stability. Several lines of defence against this outcome are needed, including greater responsibility on the part of households, firms and governments to manage their debts, and enhanced financial sector supervision.