Expanding Beyond Borders : The Yen and the Yuan
As all eyes are on the strategy and policy measures of the Peopleâ€™s Republic of China (PRC) to push the international use of the yuan, this paper turns to the internationalization of the Japanese yen and compares it with what the PRC is doing. There are some fundamental differences in the regional context and in the pattern of regional integration, and these distinguish the PRCâ€™s current strategy from the Japanese experience in the 1980s. The yenâ€™s development as an international currency, and the comparison with the PRCâ€™s strategy, highlight the importance of regional integration as a way to overcome network externalities and market inertia. Using an analytical framework that assesses both the range of different roles (the scope) and geographical scale (the domain) of a currency in the global market, the paper suggests that economic fundamentals alone, albeit essential, are not sufficient to warrant a fully fledged scope and global domain of the currency. The paper concludes by suggesting that in the next decade the PRC yuan will become Asiaâ€™s leading currency due to the PRCâ€™s deep economic integration in the region, and that the Japanese yenâ€™s function as an international asset and store of value can be further enhanced if Tokyoâ€™s competitiveness as a leading international financial center is improved.
|Date of creation:||Dec 2013|
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