Expanding Beyond Borders: The Yen and the Yuan

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan AbstractAs all eyes are on the strategy and policy measures of the People'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 PRC's current strategy from the Japanese experience in the 1980s. The yen's development as an international currency, and the comparison with the PRC'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 Asia's leading currency due to the PRC's deep economic integration in the region, and that the Japanese yen's function as an international asset and store of value can be further enhanced if Tokyo's competitiveness as a leading international financial center is improved.

A Demand-Side Analysis of Renminbi Internationalisation: The Renminbi in South Korea

“…A majority of them-including Chen andCheung (2011), Cohen (2012;, Dobson andMasson (2009), Park (2010), Subacchi (2013), Subramanian (2011a;2011b), Wu (2009), Wu et al (2010 and Yu (2014)-mainly address China's economic conditions such as its economic size, share in global trade, financial market development, capital account liberalisation, price stability, etc., which they regard as the key factors affecting renminbi internationalisation, similar to the views in Chinn and Frankel (2008) and Lee (forthcoming) mentioned above. In contrast, some studies pay more attention to the political conditions surrounding renminbi internationalisation.…”

“…Eichengreen (2013) and Eichengreen and Kawai (2014) stress the impacts on renminbi internationalisation of China's domestic political institutions, such as its authoritarian political regime and the weak independence of the People's Bank of China (PBoC), its central bank. In general, these qualitative studies tend to be more cautious about the feasibility of rapid renminbi internationalisation, although there are some positive views such as those of Campanella (2014), Subacchi (2013) and Subramanian (2011a;2011b).…”

“…5 See, for example, Chen andCheung (2011), Chey (2013), Cohen (2012;, Dobson and Masson (2009), Eichengreen (2013), Helleiner and Malkin (2012), Lee (forthcoming), Mallaby and Wethington (2012), Park (2010), Wu (2009) and Wu et al (2010). 6 See, for example, Liao and McDowell (2013), Subacchi (2013) and Subramanian (2011a;2011b). 7 See, for example, Campanella (2014), Fratzscher andMehl (2011), Ito (2010) and Subramanian and Kessler (2012). 3 political support for renminbi internationalisation, its political institutions, its policy measures for renminbi internationalisation, its international power, and so on.…”

10.5937/industrija42-6410 = To be or renminbi: Trend in the evolution of the international monetary system

“…However, this shouldn't include further and swift(er) capital account opening, since, as demonstrated by Bachetta, Benihma and Kalantzis (2013), when in transition, a rapidly growing economy has a higher welfare without full-fledged cross-border capital mobility, alas at the expense of optimal home interest rate being temporarily well above the world interest rates. Be that as it may, as long as yuan remains essentially non-convertible currency, its international use will remain limited and regionally constrained [Subacchi, 2013].…”

“…This implies not that PRC has no choice but to move to fullblooded electoral democracy in order to claim the leading international currency status; nevertheless, reinforcing transparent and politically independent judiciary system when it comes to regulating financial industry is an absolute imperative, in itself most likely associated with fairly mature civil society of western provenance [Eichengreen-Kawai, 2014]. For example, back in 1970s when Japanese yen was considered potential contestant for the global currency throne, Japan had even tighter capital controls and weaker structural characteristics than PRC today, but on the other hand -unlike China-had already developed a fully fledged democracy with trustworthy institutions and credible legal system [McDowell, 2013], [Subacchi, 2013].…”