While there is an implicit assumption exchange rate adjustments will always improve the current account balance of payments, there is little convincing empirical evidence of this relationship.

In addressing the problem of global external imbalance, "at least we should not just assume that exchange rate adjustments are the panacea," Monetary Authority Chief Executive Joseph Yam says.

In his latest Viewpoint column on the authority's website, Mr Yam said global external imbalance is unlikely to be resolved by exchange rate adjustments.

The large current account balance of payments deficit that the US has been running is currently equivalent to about 5% of US GDP or US$550 billion. With a net foreign debt approaching US$3 trillion, the situation is considered by many to be unsustainable.

The US problem has become a global problem due to globalisation, which has meant greater interconnection and interdependence between economies trading with each other.

Mainland account surplus 5% of US account deficit

He said the Mainland, which has been portrayed as an important counterpart to that problem, is running a current account surplus of only about US$29 billion, equivalent to 5% of the current account deficit of the US. Japan is running a much bigger current account surplus, amounting to US$134 billion and equivalent to 24% of the US current account deficit.

The rest of 'emerging Asia', interestingly with each of the nine economies running current account surpluses, together has a surplus of about US$110 billion, equivalent to 20% of the US deficit. The corresponding figures for the euro area are US$35 billion and 6% respectively.

Mr Yam said: "From these figures, the intensity of the political pressures on the need for the Mainland sharing in the burden of resolving this global external imbalance seems disproportionately high.

"In addressing the problem of the global external imbalance, particularly when focusing on possible exchange rate adjustments as a policy response to the problem, it is necessary first of all to be clear about the magnitude of the import-demand elasticities. But this is something that is quite uncertain.

"In the case of Japan, has the appreciation of the yen led to a reduction of the current account surplus? The answer is no. Of course the import-demand elasticities are country-specific, since each country has its comparative advantage in the production of different products, so that the experience of one may not be applicable to another. But at least we should not just assume that exchange rate adjustments are the panacea. Perhaps it is politics rather than economics that are behind all this."