Managing inflationary risk in a dollar-priced world — A key policy priority for G-20

Abstract

An evolving differentiation in recovery rates across the G-20's constituent economies has resulted in an increasingly politicised fragmentation in policy coordination. The Seoul summit endorsed, for the first time, member states pursuing unilateral macro-prudential measures to manage cross-border capital flows. The implications for the control of risk are uncertain as such measures are likely to challenge the assumption that capital is cross-border fungible. This commentary reappraises the evolution in risk transmission processes which have led to a polarised G-20 endorsing unilateral regulatory policy initiatives. In addition, it presents an alternative framework whereby inflationary sensitive commodities markets might function in a multi-currency clearing system thus short-circuiting the causal relationship between a devaluing dollar and emerging economies’ inflation.