External current account deficits or surpluses in some major economic areas—notably the United States and Asia—have reached record-high levels, and expectations are that they will stay large or increase for some time. Many observers, including IMF staff, have expressed concern that corrections to sustainable levels will likely require large exchange rate adjustments, especially against the U.S. dollar, with possibly disruptive effects on global financial markets and economic activity. In contrast, other observers are less concerned, arguing that a benign resolution of global imbalances is likely with today's deep economic and financial integration. Some recent developments suggest that globalization—the increasingly global dimension of economic and financial transactions—has changed the environment for external imbalances and their adjustment. For instance, it may be argued that larger external current account deficits or surpluses are the natural outcome of the increased scope for cross-border trade in financial assets, and that higher trade openness and greater competition worldwide are likely to have facilitated adjustment of global imbalances.
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