donald l kohn : the effects of globalization on inflation and their implications for monetary policy remarks by mr donald l kohn, member of the board of governors of the us federal reserve system, at the federal reserve bank of boston's 51st economic conference, chatham, massachusetts, 16 june 2006. * * * thank you for the opportunity to participate in this conference on global imbalances, a topic of growing importance. although i will touch on global imbalances, i would like to focus on globalization ’ s potential influence on inflation and the associated implications for monetary policy. it seems a natural focus for a policymaker at a central bank, and, indeed, several of my colleagues on the federal open market committee ( fomc ) have also addressed this issue in recent months. 1 as you would see from reading their remarks, no consensus has yet emerged about how globalization has been influencing recent inflation developments, and part of my intention today is to illustrate some of the considerable challenges that are involved in attempting to identify the extent to which the recent pickup in the pace of global economic integration has influenced inflation dynamics in the united states. 2 of course, the trend toward greater international integration of product and financial markets has been established for quite a while ; the share of u. s. economic activity involved in international trade ( measured by nominal exports plus imports as a share of nominal gross domestic product ) has been rising since the early 1970s. however, this trend has accelerated markedly over the past fifteen years or so. in particular, the economies of eastern europe became more integrated into the global economy, and china, india, and some other east asian market economies have emerged as important players in the global trading system. although inflation is ultimately a monetary phenomenon, it seems natural to expect, as others have argued, that these developments would have exerted some downward pressure on inflation in the united states. the opening up of china and india, in particular, represents a potentially huge increase in the global supply of mainly lower - skilled workers. and it is clear that the low cost of production in these and other emerging economies has led to a geographic shift in production toward them - not just from the united states but also from other formerly low - cost producers such as mexico, korea, singapore, and taiwan. 3 trade surpluses in china and in other east asian countries have increased sharply over the past decade, and from a u. s. perspective, the ratio of imported goods to domestically produced goods has accelerated noticeably in recent years

six mainstream institutions involved in microfinance, namely equity bank ltd, cooperative bank, k - rep bank, family bank and kenya commercial bank as well as the kenya post office savings bank ( kposb ). these models have had far reaching impact while influencing the microfinance practices and outreach modalities of similar microfinance institutions within the eastern african region. this steady growth in kenya ’ s microfinance portfolio indicates that prudentially regulated and supervised institutions are more able to mobilize savings on a viable and sustainable basis. this is to say, in other words, that appropriate and effective supervision with necessary and appropriate prudential rules provides a conducive and enabling environment for microfinance business to grow and thrive. this is also an indication that microfinance institutions that will opt to be licensed and regulated under the microfinance act will be in a better position with regard to improved efficiency, effectiveness ( increased outreach ) and long - term sustainability. this will further enable these institutions to establish sufficient and effective linkages to commercial banks and payment systems. ladies and gentlemen ; the central bank acknowledges that prudential regulation and supervision of microfinance institutions is not only intrusive, but has cost implications, not only to the regulator, but also for the regulated institutions. the regulation and supervision of institutions is anchored on a legal and regulatory framework that requires, first and foremost, the assessment of the adequacy of the institutions ’ capital to meet their business requirements to match their risk profiles and to protect the interests of their depositors. although prudential regulations, which subscribe minimum corporate governance standards, capital adequacy levels, liquidity requirements and adequate provisioning for loan losses etc, create a stringent regime, it is essentially necessary for deposit - taking microfinance institutions. this is to ensure the protection of their financial soundness in order to protect depositors'funds and uphold confidence in the financial system. the central bank also acknowledges that although prudential regulation is considered necessary when there are depositors to protect, it is not appropriate for credit - only mfis which fund themselves from donors ’ funds or commercial loans. the bank asserts that such mfis require relatively non - intrusive, non - prudential regulation, involving, for example, screening out unsuitable owners / managers or requiring transparent reporting and disclosures. to this end, the microfinance act, section 3 makes appropriate provisions for the deposit