Large current account deficits are often assumed to play an important role in the propagation of financial crises in emerging markets in receipt of heavy private capital inflows. This paper reaches some major conclusions. First, the Lawson Doctrine — according to which current account deficits that result from a shift in private-sector behaviour should not be a public policy concern — has been discredited by recent currency crises in Latin America and Asia. Second, it is possible to define the size of current account deficits that should be sustainable in the long run. Third, the intertemporal approach to the current account does not provide a reliable benchmark to define when deficits become “excessive”. Fourth, large external deficits should be resisted if unsustainable currency appreciation, excessive risk-taking in the banking system and a sharp drop in private savings are seen to coincide ...