being more the result of monetary policy mistakes, such as those associated with the great depression, than of supply - side forces such as were so plainly evident half a century earlier. inflation did not really become re - established on a significant scale until the second world war, after which it persisted for most of the remainder of the twentieth century. most recently, the potential problems posed by deflation, particularly in a financially developed world where debt and balance sheets interact, have become apparent, most notably perhaps in japan. all in all, there is perhaps a mixed message from these historical examples. it may be possible to live comfortably with a modest pace of deflation, especially if it reflects benign supply - side influences. nevertheless, monetary policy might usefully be engaged to avert it. c. globalisation and the pervasiveness of the law of one price returning to the factors behind current price trends, there is one aspect of globalisation which may be especially relevant. this is the rapid expansion of the range of globally traded output ( in contrast to efficiency gains within some pre - defined range ), with resultant implications for prices. in the past it was common to observe more rapid domestic inflation in economies enjoying faster productivity growth, as wages rose and the prices of non - tradables accelerated, dragging up the consumer price index. this mechanism, based on an assumed clear analytic distinction between price behaviour of tradables and non - tradables, may still be at work, but surely it is not as powerful as it used to be. the range of tradables is expanding relative to that of non - tradables. while it has long been acknowledged that progressively more goods are becoming tradable because of, for example, advances in freight transportation, the revolution in respect of services may now be more significant. thus, many services which were in the past produced only in the country where they were consumed can nowadays be outsourced offshore or accessed from somewhere else in the world at the click of a mouse - back - office processing, multi - functional call - centre services, legal advice, logistics management, design services for everything from clothes to buildings, and even certain forms of medical consultation or education, to name but a few. moreover, buyers of services increasingly elect to travel elsewhere to consume them. thus the international price elasticity of a wedding ceremony, a game of golf, hospital or health spa treatment, or conference facilities is ever rising. soon there will remain only very few location -

i am pleased to report that hong kong is playing a leading role in these efforts. but greater transparency among the regulators means that a serious asymmetry of information is emerging between the public and private sectors. we must now consider the need for greater disclosure on the investor side, since the virtual complete lack of information about the activities of huge global institutional investors poses risks to all participants in the markets - to other investors, to lenders, and to borrowers. a second part of this architectural reform must be improved prudential oversight of capital flows, since mere disclosure is no guarantee that behaviour will be prudent. part of the initiative must begin at home, since without effective domestic management international initiatives will lack a sound foundation. the asian crisis has demonstrated that the approach towards capital account liberalization in some asian economies was clearly inappropriate, given the weaknesses in domestic financial sectors. poor supervision, lax accounting standards, close relationships between lenders and borrowers, and inadequate prudential safeguards all conspired with “ hot ” capital inflows to fuel the crisis. again, it is worth pointing out that this is not purely an asian problem, as the ltcm episode revealed. prudential regulation begins at home, but it must also be extended into a global prudential and regulatory framework, which would be an aid, not a hindrance, in the general trend towards a more liberal financial environment. a third part of the reform must address cross - border manipulative practices in financial markets. rules exist against the cornering of domestic financial markets. the blatant collusion and coordination in the various recent attacks on hong kong ’ s markets, and the phenomenal financial resources the manipulators have been able to muster, underscore the need for domestic anti - trust principles to be applied to cross - border financial speculation. these are matters of some urgency, and there is already a clear international consensus that they are necessary. measures of the kind that i have just outlined are under active discussion in various international forums, including, at the latest count, the imf, bis, apec, emeap, g7, g10 and g22 or g26. while we may be in agreement on what should be done, these are not easy issues to put into practice, and my concern is that discussion in so many different groupings may lead to delay and confusion. if action is not taken quickly, individual economies, and particularly the small and open economies