These changes reflected choices by both banks and the private sector and were strongly influenced by the deregulation of the financial system. In particular, constraints on banks' business activities were progressively removed in the 1970s and early 1980s (for example, the interest rates they could charge and pay, their product offerings, lending volumes and their asset holdings).
Secondly, even a moderate inflation rate poses a dilemma in an open economy. If the domestic inflation rate of an economy, however low it may be, is higher than the average inflation rate of its trading partners, it puts pressure on the exchange rate. In this context, the question of simultaneous balance of the internal and external sectors becomes a major issue.