A momentous era in monetary history is over. A hike in short-term US interest rates for the first time in nearly a decade has called an end to the near-zero borrowing costs that have prevailed since the financial crisis. Equity investors welcomed the move, sending stock prices higher in the US, Europe and Asia. Even emerging markets, many of which have feared the fallout from a US rise, generally took the widely expected move in their stride.

The short-term reaction, however, should not obscure the fundamental challenge that a tightening in US monetary policy poses to developing economies that together account for about 35 per cent of global gross domestic product. If the Federal Reserve’s tightening trajectory is sustained in 2016 — and its own forecast suggests that it should be — the impact on two particularly vulnerable aspects could prove considerable. One of these is the unwinding of a huge emerging market borrowing boom that was fuelled by US-inspired easy money. Another is that China, beset by record capital outflows, could be forced to allow a deep depreciation of its currency, the renminbi.

The dimensions of the debt problem are forbidding. Some $9tn in capital has flowed into emerging markets since early 2005, inflating domestic debt levels to an unprecedented 160 per cent of GDP, up from just over 100 per cent before the financial crisis, according to data compiled by the Institute of International Finance, an industry association that has members in 70 countries. Most of this debt has piled up on the balance sheets of non-financial companies, which now owe around $24tn, or 90 per cent of total emerging market GDP. Households, which have also gorged themselves on cheap money, have built up debts of about $8tn, equivalent to another 30 per cent of GDP.