Monetary Power affects Japanese Yen and Chinese Yuan’s Currency Internationalization Strategies
Date Issued
2012
Date
2012
Author(s)
Yang, Pei-Jui
Abstract
What determines a state’s choice of currency internationalization strategy? Why do Japan and China adopt different policies to internationalize their currencies despite having similar national interest and economic conditions? Derived from the literatures on International Monetary Power and International Monetary Statecraft, this thesis offers a causal explanation by taking into account a state’s capability and willingness. We argue that the difference in currency internationalization between Japan and China is caused by each state’s monetary capability and will to attain international monetary status.
Based on current literatures, international monetary power is a kind of relationship property; it refers to a country’s capability of delaying or deflecting costs that derive from international adjustment. On the other hand, international monetary statecraft is how a country uses monetary power to promote or block the cross-border uses of local currency in order to achieve certain policy goals. The brief history of major currencies internationalization, such as the pound (￡), the dollar ($) and the euro (??), indicates that international monetary power played a critical role.
Since 1984, the Japanese government has launched several financial reforms and de-regulations to internationalize the Yen (￥). At first glance, internationalization of the yen seems blessing due to Japan’s amazing economic performance. However, the monetary power of Japan is weaker than that of the U.S.. Japan’s monetary agenda-setting power has been limited, so Japan usually capitulates to the U.S. in many monetary issue areas. Furthermore, Japan lacks ambition of challenging the dollar’s dominance. Japan utilizes its monetary statecraft largely to maintain stable exchange rate. In doing so, Japan becomes heavily dependent on the stability of dollar. As a result, internationalization of the yen remains far from effective.
Unlike Japan’s embrace of financial liberalization, China strongly insists on capital controls to protect the Yuan (RMB)/Dollar peg. China also strengthens its monetary autonomy by pursuing bilateral and regional monetary agreements within East Asia. Due to stronger political will, China not only overcomes the inferiority in international monetary power relation but also promotes international status of the yuan. China also practices its monetary statecraft through bilateral and multilateral financial cooperation. Therefore, internationalization of the yuan gains much success.
In conclusion, this comparative analysis of the Yen and Yuan’s internationalization indicates that the international monetary power and monetary statecraft plays an important role in determining Japan and China’s strategies.
Subjects
Currency Internationalization
International Monetary Power
Monetary Statecraft
the Yen(￥)
the Yuan(RMB)
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
index.html
Size
23.49 KB
Format
HTML
Checksum
(MD5):11a1c053756298782f39ff69f810ff40