The International Dollar Standard and the Sustainability of the U.S. Current Account Deficit

Ronald I. McKinnon

RIM

Ronald I. McKinnon

FOR MORE THAN twenty years the world’s richest, most mature industrial
economy has drawn heavily on the world’s limited pool of saving to support
high consumption—in the 1980s by the federal government, and in
the 1990s by households. Over the past decade, personal saving has fallen
more than government saving (as manifested in the recent budget surpluses)
has increased. The huge deficit in the current account of the U.S.
balance of payments, equivalent to about 4.4 percent of gross national
product (GNP) in 2000, reflects this saving gap. In order to support a normal
level of gross domestic investment (historically about 16 to 17 percent
of GNP) as well as this increased consumption, America has had to draw
heavily on the saving of the rest of the world. On a flow basis, the United
States now attracts more capital, net, than all developing countries
combined.