With hindsight, it should have been realised that simply freeing the exchange rates would cause them to shift a fair way and this would create enormous problems for a financial sector weighed down by bad debts and large foreign currency-denominated debt. This would, in turn, feed back into the exchange rate.
Do global forces dominate, and is monetary policy still effective? 7. Low inflation certainly has a global dimension. It reflects developments in oil prices; deflationary pressures coming from the Chinese economy; possibly technological change. But it also reflects domestic developments that should not be underestimated.