“In certain superficial respects, the problem of global imbalances is moving toward resolution. The Chinese renminbi has appreciated so much that the IMF declared it only ‘moderately undervalued’ in its 2012 assessment of the Chinese economy, and the Chinese current account surplus shrank to about 2.5% of GDP last year, from a peak of over 10%. But this improvement is largely the result of factors that are either cyclical or unsustainable, in particular the weakness of the global recovery (which dampens demand for Chinese exports), and China’s binge of investment spending. Sustained rebalancing is far from achieved. The need for surplus countries to stimulate domestic demand—and help boost growth in neighboring countries—is especially urgent in the euro zone. Germany’s progress in rebalancing has been far slower than China’s; its current account surplus was well over 6% of GDP in 2012.

Meanwhile, although talk of ‘currency wars’ has receded in recent months, the potential for an eruption of beggar-thy-neighbor foreign exchange policies has by no means been eliminated. The world still lacks any viable, enforceable system of preventing countries from cheapening their currencies. Almost exactly a year ago, the IMF board approved the ‘Integrated Surveillance Decision,’ which authorizes the Fund to discuss with member countries how their policies may affect the international monetary system. That was a positive step, but it lacks any enforcement power. As for G-20, the Mutual Assessment Process continues to show no likelihood of having any significant impact on the policies of major economies.”

“Major countries including the United States have been moving toward imposing stricter capital requirements on their largest, systemically-important financial institutions than are required under Basel III and FSB guidelines. Moreover, global regulators have acknowledged mounting concern about the excessive complexity of Basel III and the ability of banks to game the rules. Those two developments are both encouraging. But the stricter capital requirements aren’t nearly sufficient to ensure against the collapse of some large financial institutions in the event of another serious crisis. And as for willingness to shore up Basel 3 in a meaningful way, action has yet to be taken.”

“The enthusiasm that policymakers in the United States, Europe and Asia have been showing in recent months for giant regional trade agreements (trans-Pacific and trans-Atlantic) is taken as encouraging by many commentators, who focus on the alleged growth-stimulating potential of these deals on a sluggish global economy. I strongly dissent from this view. In the first place, the estimates of the growth impact are grossly inflated; the accords are unlikely to be nearly as ambitious as many claim, and even if the deals do prove ambitious the stimulative effects won’t materialize for many years, perhaps decades.

But more importantly, these agreements threaten to drain the life blood from the WTO, by seriously diminishing its centrality in the trading system. The attention and energy that is going into devising new trans-Pacific and trans-Atlantic rules is all based on the argument that multilateral negotiations have gone nowhere—and although it may be true that the Doha Round is a monumental failure, that means the world’s major trading partners should be doing everything they can to shore up the multilateral system rather than undermining it further with regional arrangements. As the WTO’s centrality continues to erode, the dispute settlement system—the one magnificently-functioning piece of global governance—will be increasingly at risk because countries that lose decisions will understandably resent and resist obeying the dictates of an organization with such outdated rules. The emergence of new, ‘21st century’ trans-Pacific and/or trans-Atlantic rules will only exacerbate this tendency. Their benefits of these deals (which I suspect will prove illusory anyway) are not worth the potentially disastrous costs to the multilateral system.”