glenn stevens : america, australia, asia and the world economy address by mr glenn stevens, governor of the reserve bank of australia, to the american australian association 2011 annual spring lecture lunch, new york, 14 april 2011. * * * thank you for the invitation to speak in new york. new york city remains one of the world ’ s dominant financial centres, on any metric. its stock exchange is by far the largest in the world in terms of market capitalisation. the us corporate debt market similarly eclipses that of other countries and the city is home to some of the world ’ s largest financial institutions. likewise, the united states remains the world ’ s largest national economy by a substantial margin. but the world is changing, and quite quickly. the rise of china ( and, very likely, india ) is a transformative event for the global economy. unless something pretty major goes wrong, we are likely to see much more of this trend for quite a long time yet. as recently as 1990, the united states accounted for a quarter of the world economy. the european union was just a little over a quarter. japan, east asia and india combined made up roughly another quarter ; japan on its own was about a tenth of global gdp. ( australia was then, and still is, just over 1 per cent of global gdp. ) in 2010, the us share was about 20 per cent of world gdp, about the same as the european union. by then, asia was making up just under a third of the total. china alone had raised its share of global gdp from less than 4 per cent in 1990 to over 13 per cent – quite a change in the space of 20 years. india ’ s share, which had been the same as china ’ s in 1990, had been little changed until about 2004. it has started to increase more noticeably since then, though it remains well below china ’ s at the moment. but given that the demographics for india are more favourable than those for china, we could expect that in another 20 years india ’ s prominence will have grown a great deal – assuming that country continues the process of reform that has helped it to generate impressive growth over recent years. these figures are all based on the imf ’ s purchasing power parity estimates for countries ’ respective gdps. some might find them a bit abstract – if you doubt that, try explaining purchasing power parity to your mother. but we can appeal to various other “ real ” indicators to chart the

attention is being paid to the us fiscal position – and that will probably increase further. in asia, public finances are generally strong except in japan. these differences were bound to increase the focus on policy differences between regions, and exchange rate systems in particular. it is not surprising that we are returning to discussion of the “ global imbalances ”, since many of the underlying factors behind them have not gone away. renewed efforts to find a framework for talking about these issues are now under way. as others have said, a prerequisite for a solution is a shared understanding of the problems within an agreed intellectual framework. but finding that combination is not proving easy. the dialogue needs to occur on multiple issues, to which countries bring different perspectives. many of the countries of asia come, for example, with a mindset in which the international monetary system is a device for stability, one of the foundations for strategies to grow economies and increase wealth. they see flows of capital, and fluctuations in exchange rates, as potentially disruptive to the real sectors of their economies. this is in many respects a traditional post - war perspective, when there was a us dollar standard, when the united states as an economic and financial power was unrivalled and all other economies and financial systems were truly small. but of course asia is no longer small. countries like the united states or australia, on the other hand, have a different frame of reference. they tend to see the international monetary system as a device for accommodating shocks and reflecting differences in economic circumstances. they see price movements and capital flows, generally, as helping resource allocation. european countries share that perspective as far as flows and exchange rates between the major regions of the world are concerned, but share asian perspectives on the need for stability within their own region. there are good reasons, in logic and history, for all these perspectives. we need to understand them, and find an accommodation. it does not help, in my judgment, that so much of the discussion takes place through a bi - lateral prism – particularly the us - china current account prism. twenty years ago the prism was the us - japan balance. the issues are multi - lateral, not bi - lateral. the us trade deficit was pretty widely spread for many years. it wasn ’ t just with china. over the past decade, the united states had a trade deficit with 13 of the 18 other countries in the g - 20 ( of the five surplus positions, the largest was with