(Why) Should Current Account Balances Be Reduced?

This proposed SDN—a sequel to “Global Imbalances in Midstream?” (Blanchard and Milesi-Ferretti, 2010)—would complement work being done by the IMF in response to the request of the G-20 to develop “indicative guidelines” for the reduction of global current account imbalances. Its purpose is to start a discussion and hopefully find answers to two questions. First, why might a country want to reduce its current account deficit or surplus? And second, why might the international community ask for more reduction than suggested by domestic considerations? Answers to these questions should inform the design of “rules of the game” that countries should abide by, help identify policy initiatives designed to reduce imbalances, and contribute to the development of “indicative guidelines” to monitor progress on that front.