It is often said that when America sneezes, the world catches a cold. That saying tends to refer to other countries following its lead, but when it comes to changes in the United States' monetary policy one can understand it in a different sense, since the spillover effects can significantly affect the economic well-being of other countries, especially the emerging economies, by disrupting their stock markets, asset valuations and capital flows.

With the US Federal Reserve suggesting recently that it will hike interest rates "more aggressively" — possibly up to five times this year — to ease the country's skyrocketing inflation, there have been growing concerns that its policy shift will have major impacts on the financial stability of many developing countries, and thus further slow their pace of recovery from the COVID-19 pandemic.

To address such worries, finance leaders from the G20 have called for realizing a "well-calibrated, well-planned, well-communicated" normalization in monetary policy to minimize the impacts of the Fed's raising of interest rates. The consensus was reached last week during the G20 Finance Ministers and Central Bank Governors Meeting in Jakarta, Indonesia.

Yet great difficulties lie ahead as the finance ministers seek to accomplish their policy targets, given the vulnerable financial situation the world now finds itself in. To help prop up the ailing US economy during the pandemic, the Fed has resorted to printing trillions of dollars and injecting them into the banking system, which has driven up US national debt to its record high of more than $30 trillion. The amount of money created from "thin air" has reached such an unprecedented scale that by December 2021, 80 percent of all US dollars in existence were printed in the last 22 months, according to news reports.

Whether the US' "financial fantasy" can be sustained remains a question for economists to answer. But the surge in money supply, given the world's dollar dependence, has already led to rising food and energy prices globally, which has made the lives of poor people even harder. Now, with increasing US interest rates in sight, the developing countries, especially those with weak economic fundamentals, face the risks of much higher debt burdens and capital outflows which, if not addressed properly, could lead to financial crises.

This makes it all the more urgent and necessary for countries to strengthen cooperation in coordinating their macro policies so as to propel common development. The developed countries represented by the G7, together with the EU, still enjoy a dominant position in the global financial system. So it is imperative that they act responsibly to minimize the negative spillover effects from their monetary policies on the developing world.