There is growing discussion in the International Monetary Fund and elsewhere about the need to tackle global imbalances. But it is strange that, while the dollar is widely acknowledged to be overvalued, this has so far had relatively little impact on the market or central banks’ willingness to hold dollar assets. There is an increasing danger that sooner or later something could spark off a dramatic fall in the dollar, leading to chaos in currency markets, a sharp fall on Wall Street and a recession in the US spreading to the rest of the world.

We urgently need an agreement among the main players – the US, China, Japan, the eurozone and the UK – for an orderly adjustment of exchange rates before it is too late. There are good precedents for such an approach in the Smithsonian and Plaza agreements, devaluing the dollar in 1971 and 1985 respectively.