Internationalization of currency in East Asia: premises, implementation, possible prospects

Abstract

This article covers the issues concerning the process of internationalization of currency in East Asia as represented by the Japanese Yen and the Chinese Yuan. The Japanese Government began to support the process of Yen internationalization in the 1980s. The main obstacle to the overall internationalization of the Yen was the immaturity of the financial market. Despite the initial success, the liberalization of Japan’s financial system ultimately resulted neither in the further strengthening of the Japanese economic position on the global stage, nor in the strengthening of the position of Yen in the overseas markets. The main reason for this failure was US political pressure that imposed accelerated opening of financial markets and significantly reduced the capabilities of Japan to counter speculative capital inflows from abroad. At present the Japanese currency hasn’t managed to become a real rival to the USD, which resulted from both external and internal reasons. The Chinese government began the same process in 2009. The internationalization of RMB has proceeded largely in line with deliberately designed strategy. At the moment the Chinese economy does not fully meet all the criteria for internationalization of its national currency, but national authorities have managed to move towards the goal of RMB internationalization, while simultaneously securing its financial system against risks. Despite the achieved success — the decision of IMF to include Yuan in the SDR basket on October 1, 2016 — the RMB hasn’t achieved the status of an international reserve currency. Despite certain similarities between the Japanese and Chinese experiences, there is a principal difference in the approach to the formation of a developed financial market which is considered to be a key precondition for the success of national currency internationalization.