History Rhymes – A Comparison of China Today with Japan in the 1920s

John Greenwood
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John Greenwood: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

No 77, Studies in Applied Economics from The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

Abstract: During the First World War Japan experienced large surpluses on its external accounts which, via monetary expansion, drove up prices to an uncompetitive level compared with other leading economies such as the US and the UK. Similarly, following China’s devaluation of its currency and exchange rate reunification in 1994 along with the adoption of a fixed rate against the US dollar, China gradually built up huge external surpluses in the early 2000s, which continued even after the 2005-14 appreciation of the currency. For Japan in the 1920s the result of the overvaluation was a decade of financial crises, slow growth, agricultural depression and deflation. Only in December 1931 did the authorities finally abandon the fetish of returning to the pre-war exchange rate and devalue the yen, allowing Japan’s external accounts to return to equilibrium. In 2017, China is faced with essentially a similar set of choices as Japan in the 1920s.

Keywords: Central bank; Purchasing power parity; Balance of payments; Japan; China (search for similar items in EconPapers)
Pages: 11 pages
Date: 2017-03
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