Global imbalances refers to the situation where some countries have more assets than the other countries. In theory, when the current account is in balance, it has a zero value: inflows and outflows of capital will be cancelled by each other. Hence, if the current account is persistently showing deficits for certain period it is said to show an inequilibrium. Since, by definition, all current accounts and net foreign assets of the countries in the world must become zero, then other countries become indebted with the other nations. During recent years, global imbalances have become a concern in the rest of the world. The United States has run long term deficits, as well as many other advanced economies, while in Asia and emerging economies the opposite has occurred. Global imbalances are far from being a new phenomenon in economic history. There are many periods where they were present, although here only those periods where some data is available will be referred to.

The first period of global imbalances that will be presented, occurred during the years 1870 to 1914 (a former era of financial globalisation) where massive flows of capital flew from the core countries of Western Europe to the countries of recent settlement overseas (especially the Americas and Australasia).Currentaccount surpluses run by Britain, Germany, France and the Netherlands reached approximately 9% of GDP, while for the destination of the flows. (Argentina, Australia and Canada) the deficit exceeded 5%.

The process of adjustment of these imbalances relates to the price specie flow mechanism of the classical gold standard, which was smooth, in general, with exception of the Barings Crisis in 1890 for some countries.

During the First World War, the participating countries abandoned gold convertibility, with exception of the United States. After the war, by 1926, the major countries got back to a gold standard, where the countries held reserves in dollars, sterling and francs, and the United States, Great Britain and France held gold. But this system had some serious flaws which prevented that the imbalances generated were adjusted smoothly. Real exchange rates were misaligned, and the system began to lose credibility (since, at the time, it seemed that external concerns came second after domestic concerns). The collapse began after 1929: speculative attacks on countries following expansionary policies to alleviate the effects of the Great Depression, and soon had to leave the gold standard. The United States continue until 1933. The imbalance during this period, however, where not as large in magnitude as they were before the First World War.

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