Currency Misalignments and Trade Asymmetries among Major Economic Areas

Large exchange rate misalignments are the most serious asymmetry in the world economy today because they interfere with international specialization and trade based on comparative advantage, and it leads to protectionism. The paper examines the extent to which these asymmetries are a reflection of fundamental disequilibria in the world's major economic areas (the United States, the European Monetary Union, Japan and China), rather than being simply exchange rate problems. It also examines the type and extent of the structural measures required in each of the major economies or areas to adequately deal with the problem currency misalignments.