Expanding Beyond Borders: The Yen and the Yuan

Paola Subacchi
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Paola Subacchi: Asian Development Bank Institute

No 450, ADBI Working Papers from Asian Development Bank Institute

Abstract: As 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.

Keywords: yuan; japanese yen; internationalization; network externalities; regional integration (search for similar items in EconPapers)
JEL-codes: E42 E44 F33 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-12-05
New Economics Papers: this item is included in nep-cba, nep-mac, nep-sea and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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