According to the Bank for International Settlements, share prices have been falling and commodity prices have been volatile, not because of a deteriorating outlook for companies or worries over inflation, interest rates or growth, but because of greater nervousness about holding risky assets, particularly in emerging market equities and bonds. On the other hand, the European Central Bank, in its June Financial Stability Review, still puts the main sources of risk and vulnerability as ?global financial imbalances?, which is code for the risk of a plunge in the dollar.

So when a friend suggested I look at the global implications of a serious dollar collapse I jumped at the idea. Asking about the implications of a dollar collapse is a different ball game from predicting its likelihood or timing. Instead of hopeless crystal ball gazing we can ask what this event would mean and what kind of policies should be adopted in response.