Abstract:Global financial imbalances have recently been fading from the headlines. One reason might be the strong growth performance of the global economy, for both developed and developing countries, despite signs of a mild slowdown in the United States. Another reason might be optimism about self-regulating market mechanisms, best represented perhaps by the views of the International Monetary Fund in the latest World Economic Outlook (April 2007, pp. 106): The analysis in this chapter of historical episodes of large and sustained imbalances and their reversal clearly suggests that a market-led realignment of real exchange rates can play an important complementary role to demand rebalancing across countries to facilitate a smooth unwinding of external imbalances. (...)