Shifts in income distribution might not happen fast if strong structural forces push in the other direction. Public policies (fiscal, social safety nets) certainly have a role to play, but they take time to redeploy and implement. Finally, consumption patterns differ across countries and are strongly influenced by differences in taste and level of developments. So, global rebalancing in consumption requires a change in production structures. That change will not – and should not – occur overnight. Attempts to speed up the process would only result in major disruptions and increased volatility. Rebalancing will be progressive but should start now. It cannot be achieved without some adjustment in relative prices. In market economies, it is important that producers face the right price environment when they make long term decisions about investing in technology and productive capacity. Countries are free – and should remain free – to choose whatever exchange rate regime and policy suit them best, taking into account their specific national circumstances. Real exchange rate adjustment, however, is an integral part of a global and orderly rebalancing strategy. That wisdom is best embodied in one of Governor Hu Xiaolian’s speeches, last July, where she demonstrated how domestic factor price and exchange rate adjustments are both substitutes and complementary. Many interactions between our economies occur through capital rather than good markets; This is normal in a “multipolar” world given the diversity of countries, with different preferences, demographics and levels of development. Some of us save more than we spend. Others need capital to finance their growth.

Those huge pools of savings currently available can be intermediated locally instead of going through financial systems located in advanced economies. Regional financial markets would have to complemented and underpinned by monetary arrangements. Asian countries are working on and implementing progressively such schemes through the Chiang Mai initiative. We, in Europe, monitor closely those evolutions as well as the progressive emergence of the RMB as an international currency. As you know, we have a long and successful history of economic, financial and monetary integration. We have learned a lot and, still recently, gone through many crises and difficulties. Nevertheless the Euro, which did not exist fifteen years ago, stands today as one of two major world currencies. We certainly don’t pretend our own experience should constitute a model or an example to be followed. I have, however, one certainty: a strong and permanently renewed spirit of cooperation has allowed us to overcome many obstacles and to reap many benefits in terms of prosperity and stability. In a world full of opportunities, but also increasingly complex, this may be an inspiration for all of us. I thank you for your attention. References Caballero, Ricardo J., 2006. “The Macroeconomics of Asset Shortages.” 4th ECB Central Banking Conference, Frankfurt, November. Caballero, Ricardo J., Emmanuel Farhi and Pierre-Olivier Gourinchas, 2008a. “Financial Crash, Commodity Prices, and Global Imbalances.” Brookings Papers on Economic Activity, Fall, pp 1–55. Caballero, Ricardo J., Emmanuel Farhi and Pierre-Olivier Gourinchas, 2008b. “An Equilibrium Model of “Global Imbalances and Low Interest Rates.” American Economic Review, 98:1, p358–393.