Cooperation among major countries to shrink global imbalances in trade and capital flows is highly desirable for the sake of promoting a sustainable recovery from the financial crisis that erupted in 2008. The story that unfolds in this paper does not bode well for such cooperation. It is a detailed account of the initiatives, led by the IMF, to address imbalances prior to the 2008 global financial crisis. Based on interviews with scores of policy makers who were involved in the initiatives, and on thousands of pages of confidential documents that have never been disclosed, it focuses on two undertakings: the Fund’s 2007 decision to strengthen its surveillance of exchange rates, which was aimed at prodding countries to take action when their currencies were seriously under- or overvalued and the multilateral consultations, in which the IMF convened representatives of five major economies to discuss plans for shrinking imbalances.
