prospects for continued price stability. more - prudent fiscal policies, including lower deficits, longer debt maturities, and reduced foreign - currency debt can reduce the likelihood and potential severity of financial crises. these policies make the financial positions of emerging - market governments less refer to ross levine ( 2005 ), " finance and growth : theory and evidence, " in philippe aghion and steven durlauf, eds., handbook of economic growth ( new york : elsevier ) ; and randall s. kroszner and philip e. strahan ( 2006 ), " regulation and deregulation of the u. s. banking industry : causes, consequences, and implications for the future, " unpublished paper. vulnerable to movements in interest rates and exchange rates. a reduction in the perceived risk that a government may not be able to service its debts makes changes in investor sentiment and financial contagion less likely, thereby reducing financial market volatility. maintaining progress i have argued that globalization, deregulation, and financial innovation, in part spurred by recent experiences of high inflation, have fostered currency competition that has led to improved central bank performance and, hence, the reduction of inflation worldwide. the resulting enhancement of central bank governance and credibility has allowed the development of long - term bond markets in many countries and the flattening of yield curves around the globe. i want to conclude by returning to the question of whether these phenomena are likely to persist. globalization and innovation are genies that may prove difficult to put back in their bottles. nonetheless, although i am an optimist, i would be remiss if i did not point out some risks. in particular, deregulation and global competition may be subject to change. the difficulty of reaching agreement in the doha round of trade negotiations highlights the risk of renewed protectionism and backtracking on deregulation. trade barriers and regulations are anathema to globalization and competition. barriers to the free flow of goods, services, capital, and technology would also diminish the force of innovation that has been so beneficial in the struggle against inflation. transaction taxes and administrative barriers may hinder the development and liquidity of bond markets, and much progress that is still required in many emerging - market countries on these fronts. high inflation can destroy an economy and result in enormous hardship for everyone involved, as argentina painfully experienced not long ago. the benefits achieved through more - stable prices are substantial. fortunately, economic forces have

of worldwide inflation will persist or be a temporary phenomenon. the worldwide decline in inflation from the 1950s until the late 1960s, inflation rates were relatively contained, and episodes of high inflation were rare. then, especially following the early - 1970s collapse of the bretton woods fixedexchange - rate system, inflation became a worldwide phenomenon. even in germany, which had the most stable prices of any country in the world, inflation eroded purchasing power by more than half between 1972 and the launch of the euro, in 1999. in terms of cumulative inflation, $ 480 would be required today in the united states to purchase $ 100 worth of goods and services at 1972 prices. for most countries reporting data to the international monetary fund ( imf ), cumulative inflation has been even higher than that experienced in the united states. here in argentina, the price level is now about 177 billion times higher than it was in 1972. but brazil takes the prize for greatest inflation of the post - joseph e. gagnon, of the board's division of international finance, contributed to this speech, portions of which draw on randall s. kroszner ( 2006 ), " the conquest of worldwide inflation : currency competition and its implications for interest rates and the yield curve, " speech delivered at the cato institute monetary policy conference, washington, november 16, www. federalreserve. gov / boarddocs / speeches / 2006 / 20061116. friederich a. von hayek ( 1976 ), denationalisation of money : the argument refined : an analysis of the theory and practice of concurrent currencies ( london : institute of economic affairs ). world war ii era : the price level in brazil is approximately 500 billion times higher today than it was in 1972. 3 since the early 1990s, however, worldwide inflation has significantly declined. indeed, the april 2006 issue of the imf's world economic outlook shows that, on average, inflation rates in the advanced economies as well as in the developing countries in recent years have been at their lowest levels since at least the early 1970s. the april 2007 issue forecasts inflation in both regions to remain near these recent lows through 2008. but is this lower inflation regime likely to persist? one way to approach this issue is to investigate what market participants think by examining measures of expected inflation. overall, these surveys suggest that market participants do expect relatively low inflation to continue in most major industrial and emerging - market countries. in the industrial countries and a