Will China's addiction to dollars lead the global economy into a bruising showdown with inflation?

The head of Canada's central bank fears it may. Mark Carney, the governor of the Bank of Canada, said in a speech Monday that emerging countries accumulating massive currency reserves have a "death grip" on the dollar.

That grip, he said, prevents the global economy from adjusting to massive imbalances signified by, among other things, rising inflation in the developing world and persistently weak demand for goods and services in Western economies.

Carney spoke in Toronto on the implications of the low-rate policies being pursued by the Federal Reserve and other developed-world central banks. Without criticizing those policies, he said it is clear that the conditions are being set for an "increasingly uneasy emergence" of poorer economies.

Carney didn't name names, but it is clear he is referring first and foremost to the group beloved on Wall Street as the BRICs - Brazil, Russia, India and China.

The unease, he said, stems from the fact that growth in the developing economies tends to raise commodity prices, which pressures income in slower-growing rich countries. What's more, nations such as China continue to subsidize overseas trade by suppressing the value of their currencies, by purchasing dollars with the proceeds of their export sales.

By pursuing those policies, he said, those nations are preventing a long overdue rebalancing of the global economy. China is by far the biggest offender there: At last count it had $2.6 trillion of foreign exchange reserves, mostly in dollars - far more than the country could possibly need to deal with any financial market shock.

In doing so the emerging economies are keeping their own currencies undervalued, which props up the value of the dollar and retards job growth here, among other things.

These are not unlike the problems seen in the wake of the Great Depression, Carney said, when numerous countries pursued a so-called race to the bottom to devalue their currencies against gold.

But while those devaluations helped break the death spiral by giving countries some desperately needed flexibility, this time round the dynamic seems to be working in reverse.

David Fuller's view Currencies of the faster growing economies are adjusting upwards against the US Dollar, as one can see from this 20-year monthly chart of the Asia Dollar Index which includes the plunge during the Asian financial crisis. The Latin America Dollar Index plunged in the first half of the same period, and again in 2008, but has been ranging higher subsequently. A too rapid adjustment would create more problems than it solved, in my view.