1. Over the last eight months, the Treasury Committee has been engaged in a substantial inquiry into the banking crisis. To date, the Committee has taken evidence on 22 occasions since 3 November 2008, and has produced three Reports.[1] Following on from that inquiry, we wanted to assess briefly some of the wider international repercussions of the crisis.
2. The recent financial and economic crisis has been truly international in nature—real world GDP is forecast to fall by 1.3% in 2009.[2] We publish with this short Report evidence we have received on both the international regulatory framework, and on the international monetary system. A forthcoming report will tackle some of the international regulatory issues faced by the UK. Here we focus on a single aspect of the recent crisis, usually referred to by the term 'global imbalances'. The Turner Review provides the following description of these imbalances:
Oil exporting countries, Japan, China, and some other east Asian emerging developing nations have accumulated large current account surpluses, while large current account deficits have emerged in the USA, but also in the UK, in Ireland, Spain and some other countries.[3]
3. Throughout our inquiry into the banking crisis, we have heard evidence of the role played by these 'global imbalances' as a key factor in the present difficulties. The Governor of the Bank of England stated that "The ultimate cause of what we have been through in the last two years was the imbalances of the world economy and the inability to cope with the resulting capital flows".
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