On savings ratio

Z. Xiaochuan

Financial Stability Review, 2011, issue 15, 165-169

Abstract: This paper explores the factors that affect saving and consumption behaviours, in a context where some believe that the high savings ratio of the East Asia and oil-producing countries is one major cause for the global imbalances and the crisis. The paper elaborates on the factors behind the high savings ratios in East Asia and oil producing countries and low savings ratios in the United States. It argues that the high savings in East Asia can mainly be explained by cultural and structural factors in nature. Simple adjustments in nominal exchange rate cannot influence savings behaviour. The paper also argues that savings increased in East Asia as a result of rescue plans designed by international organisations after the 1997 crisis. Encouraging a reduction in savings ratio has been an important component of the national economic policies in China since 2005. The low savings ratios in the United States over the recent period are mainly due to euphoria sentiments and an analysis of time series suggests that no significant causal relationship exists between savings and consumption behaviours in the United States and those in East Asia. The paper discusses a set of options for adjusting savings ratio over the time. They include a switch to a more balanced growth pattern, enhanced regulation of the international speculative capital flows and the channeling of more savings into developing countries and emerging markets. In addition, a reform of the international monetary system is in order so as to prevent the over-concentration of foreign assets in one particular currency.

Date: 2011
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