Bernanke says no:
The traditional distinction between the core and the periphery is becoming increasingly less relevant, as the mature industrial economies and the emerging-market economies become more integrated and interdependent. Notably, the nineteenth-century pattern, in which the core exported manufactures to the periphery in exchange for commodities, no longer holds, as an increasing share of world manufacturing capacity is now found in emerging markets. An even more striking aspect of the breakdown of the core-periphery paradigm is the direction of capital flows: In the nineteenth century, the country at the center of the world's economy, Great Britain, ran current account surpluses and exported financial capital to the periphery. Today, the world's largest economy, that of the United States, runs a current-account deficit, financed to a substantial extent by capital exports from emerging-market nations.
Bernanke is right to highlight the fact that emerging markets are exporting capital to the US, financing the US current account deficit. Euroland and the UK both have deficits, and Japan's surplus hasn't increased significantly -- so the recent rise in the deficit has largely been financed by an increase in the surplus of emerging markets.
But does that make the distinction between the core and the periphery less relevant?
Not in my book. Those flows aren't coming from private citizens and private financial institutions in the periphery. They are coming from governments. China is a case in point, but the oil exporters matter too -- Russian reserves grew by about a billion a day in the first ten days of August. The Saudis are sitting on a huge inflow of dollars. Even Brazil is once again adding to its reserves at a rapid rate.
That means there is a big difference between the core and the periphery. In the periphery, private capital inflows are used to finance the build-up of reserves. In the core, official capital inflows are used to finance current account deficits.
That is true for all of the "core" -- not just the US
The pound's rising share of global reserves implies that central banks are financing a big share of the UK's deficit. Stephen Jen is right on this point.
For that matter, by my calculations (alas, hidden behind the RGE firewall), central bank inflows into the eurozone are more than enough to finance the eurozone's 40 to 50b euro ($50-60b) current account deficit over the past 12 months. The world's central banks probably added over $200b to their euro portfolios in 2005.
And I write non-stop about the role central bank inflows play financing the US current account deficit.
That seems to make the core-periphery distinction all the more relevant. Government policy choices in the periphery are leading them to finance the core.
On this, I fully agree with Dooley, Garber and Folkerts-Landau!