The swelling of the United States' foreign debt is weakening the international monetary system and feeding expectations of a long term depreciation of the dollar. The required adjustment of the US current account thus appears as a burden to be distributed between the US and its trade partners, via adjustments in the exchange rate. The greater exchange rate flexibility which the G7 has called for concerns mainly the large emerging economies that are not included in it. The G20 may therefore appear as a forum better suited to furthering international monetary cooperation. This article evaluates the adjustments required, and their distribution within the G20, on the basis of an econometric description of the behaviour of the real exchange rate over the long term. If all countries had gone along with flexibility, then the euro would have been close to its equilibrium rate against the dollar in 2003. But a simulation of Asia’strategy for pursuing monetary stability vis-à-vis the dollar suggests that the euro needed to appreciate a further 10-15%.
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