Academics and policymakers are in broad agreement that a major rebalancing is needed to put the world economy back on track. Higher savings in deficit countries and stronger demand in surplus countries, particularly emerging markets in Asia, are required. However, most international organisations expect payments imbalances to increase again over the medium term. The International Monetary Fund projects the Chinese current account surplus to increase to 8.6 per cent of gross domestic product in 2010, after having fallen to 7.8 per cent last year.

The main reason for the lack of adjustment is that policymakers around the world tend to focus more on the short-term costs of rebalancing than on the longer-term benefits. The same short-sightedness that prevailed in the run-up to the crisis is once again in evidence.

Consider, for instance, the current rigidities in the foreign exchange policies of several emerging Asian economies, in particular China. The removal of these rigidities would contribute to a better-balanced world economy, with benefits both in surplus and deficit countries.

A gradual appreciation of exchange rates in emerging Asia would lead to lower relative prices for traded goods, thereby raising purchasing power and stimulating domestic demand. It would push the export sector to improve productivity and invest in high value-added sectors. It would help to bring monetary conditions in these countries more closely into line with domestic requirements and avoid importing the monetary stance of the US, which is evidently too loose for fast-growing economies and might fuel asset price bubbles. It would also reduce the steady accumulation of international reserves, even after the crisis. A more balanced exchange rate regime would encourage higher savings in countries with current account deficits as well as reduce protectionist pressures, now on the rise in response to competitive distortions.

If a gradual appreciation of Asian currencies, in particular the renminbi, is in the interests of those countries and of the world economy as a whole, one may wonder why a decision of this kind has not been taken yet. The answer has much to do with political economy. In the midst of a global crisis, the benefits of the status quo seem to be more visible than the potential advantages of a change in policy, especially in emerging economies that have been able to grow at a sustained pace in 2009.

In China, the persistence of an undervalued currency has over the years effectively subsidised exports. As the export sector has grown over time, the “subsidy” has given it a disproportionate importance, not only in terms of output and employment but also with respect to its influence on political decisions. Since global trade has shrunk substantially as a result of the crisis, exporters have been calling more loudly for the preferential exchange rate regime to continue, claiming that any appreciation of the currency would reduce competitiveness, and thus output and employment. Furthermore, the availability of large foreign exchange reserves has helped to protect domestic markets from the global contagion.

The case for a change in regime and a gradual appreciation of the currency has become more difficult to argue after the crisis. Typically, an undervalued currency leads to higher inflation and even social discontent, but for now inflationary pressures remain subdued. Asset price inflation is seen as a minor worry, affecting only the better-off. The fast pace of credit growth (over 30 per cent in China) does not seem to have yet led to an abnormal build-up of non-performing loans, while administrative measures are regarded, somewhat naively, as sufficient to control that growth. The continued accumulation of foreign exchange reserves is perceived not as a fiscal burden on citizens but as a bulwark against future crises.

Overall, the global crisis seems to have strengthened the influence of those parts of society favouring a continuation of the current regime and weakened the voice of those asking for much-needed reform. As a result, short-term goals may once again be allowed to override balanced and sustainable economic policies. It is a well-known problem of political economy in western democracies. It no longer seems to be confined to them.

This is an additional risk for international policy co-operation and for the recovery of the world economy.

The writer is a member of the executive board of the European Central Bank