Global trade imbalances have surged since the early 1990s. Figure 1 shows an index of global trade imbalances—the sum of the absolute values of real trade balances across countries—and real global trade from 1970-2007.1 Global imbalances grew by 11% a year on average from 1990 until 2007; in the previous 20 years, average annual growth was only 1%. In contrast, global trade grew at a strong and steady pace of about 6% a year over the whole period. The expansion in global imbalances became a cause for concern in the new millennium, when they rose well above previous levels. The fear was that the immense capital fl ows associated with these imbalances could rapidly shift, leading to disruptive adjustments in importing countries. More recently, concern that imbalances refl ected a global savings glut, resulting in an underpricing of risk, took center stage. This puts global imbalances as an important factor in the severity of the fi nancial crisis (eg. Bernanke 2009 and Obstfeld and Rogoff 2009), and implies that a more stable fi nancial system must involve more balanced capital fl ows.