This section explains BWII as a result of the interplay between financial market underdevelopment in many emerging markets, financial globalisation and specific savings and investment dynamics.
The last section discusses how the ongoing turmoil in financial markets might signify a sea change in current global economic and monetary arrangements and the concomitant demise of BWII.
The lessons learnt by the Asian economies during the financial crisis also set the scene for the emergence of today's external imbalances and the consolidation of the BWII system.
Explaining this pattern of net capital flows that underpin current account imbalances is the essence of BWII, which will be elaborated below.
There are a number of interrelated factors that, taken together, explain the emergence of global imbalances and the broader BWII configuration.
12) Indeed, one key marker of the stability of BWII would be the continued preference of foreign central banks to hold low-yielding US government debt, which is the primary reserve asset of choice.
In sum, BWII has allowed many emerging markets to foster a specific economic development model based on export-led growth, while permitting the US to import capital and spend more than the economy produces.
However, a broader perspective suggests the current financial market turmoil is an outcome of an unsustainable period of credit growth intimately tied to the BWII system.
BWII, in the words of Munchau, has been a "gravity-defying design", which has allowed the US to run a CAD and the emerging markets to recycle their trade surpluses back into the US, increasing various asset prices and encouraging financial institutions to take excessive risks.
For Roubini (2008), BWII has always been a disequilibrium for emerging Asia, where the entire Asian development model has been based on sustaining US consumption.
Further, a large share of the capital inflow to the United States comes from private investors whose economic incentives are different than those of the BWII central banks.
If BWII is to offset the outflow of private capital based on realistic expectations of the dollar's future path, the BWII central banks would need to increase their already huge dollar reserves by an amount that is probably not feasible.