Yen Bloc

Yen Bloc: Toward Economic Integration in Asia

C. H. Kwan
Copyright Date: 2001
Pages: 232
https://www.jstor.org/stable/10.7864/j.ctt127xx2
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  • Book Info
    Yen Bloc
    Book Description:

    In this important new book, C.H. Kwan asks whether the Japanese yen can, or will, replace the dollar as the key currency in East Asia. Kwan analyzes the implications for Japan and Asia's developing countries should they come together to form a yen bloc -a grouping of countries that use the yen as an international currency and maintain stable exchange rates against the yen. Combining academic analysis with his experience advising the Japanese prime minister and the Japanese minister of finance, Kwan concludes that a yen bloc might benefit Asia's developing countries -as well as Japan -while contributing to a more stable international monetary order. Kwan's book represents the first attempt to explore systematically the possibility of monetary integration in Asia. It also provides a vision for regional integration in Asia in the twenty-first century.

    eISBN: 978-0-8157-9870-5
    Subjects: Political Science, Business, Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-xii)
  3. Preface
    (pp. xiii-xvi)
  4. Glossary
    (pp. xvii-xviii)
  5. 1 Overview
    (pp. 1-12)

    Interest in a yen bloc in Asia has been on the rise. This is happening against a background of growing recognition of the limitation of the Asian countries’ traditional exchange rate policy of pegging to the dollar, as revealed by the recent currency crisis in Asia; the implementation of Japan’s ambitious financial reform program dubbed the Big Bang; and the emergence of the euro as a challenge to the dominant role played by the U.S. dollar in the international monetary system. As noted in the preface, the termyen blocrefers to a group of countries that use the yen...

  6. PART ONE THE ECONOMIC FUNDAMENTALS SUPPORTING A YEN BLOC
    • 2 The Rise of Regionalism in Asia
      (pp. 15-37)

      The pattern of economic development in Asia during the postwar era has been likened to a flock of wild geese flying in formation. The development process began in Japan, with the Asian NIEs and, later, the ASEAN economies and China catching up from behind. Traditionally, these economies depended heavily on the United States for trade and investment, but the trend toward intraregional economic interdependence has accelerated since the Plaza Accord in 1985. The end of the cold war also promoted the integration of the socialist countries into the regional economy. The virtuous circle between growing interdependence and rapid economic growth,...

    • 3 Deepening Japan-Asia Interdependence
      (pp. 38-60)

      The trend toward deepening economic interdependence in Asia has accelerated since the global realignment of exchange rates in the latter half of the 1980s. The increase in foreign direct investment among Asian countries and the integration of China into the regional economy have boosted intraregional trade at the expense of exports to the United States. At the same time, Asian countries’ pace of industrialization has gathered momentum, with manufactured goods now accounting for the bulk of their exports. Taking advantage of Asia’s dynamism, the axis of Japan’s foreign economic relations is shifting from the United States to Asia. Although this...

    • 4 Asia in Search of a New Exchange Rate Regime
      (pp. 61-82)

      In the summer of 1997, amid intense currency attacks by speculators, many developing Asian countries were forced to abandon their traditional dollar peg system and allow their exchange rates to float. After a period of sharp depreciation accompanied by high volatility, in the autumn of 1998 exchange rates in these countries bottomed out against the U.S. dollar, thanks to the yen’s rebound and a return of confidence in the economic prospects of these countries. However (with the notable exception of the Malaysian ringgit), these currencies have not restored their stability against the U.S. dollar seen before the crisis (figure 4-1)....

    • 5 Revitalizing the Japanese Economy
      (pp. 83-106)

      The 1990s will be remembered as Japan’s lost decade, with economic growth lagging far behind not only the high level it achieved in the past but also that of other major industrial countries. Several factors contributed to the stagnation of the Japanese economy during this period. Falling asset prices had an immense negative impact on domestic spending; macroeconomic policies failed to restore production to its potential level. The traditional “Japanese model,” which worked so well when Japan was catching up with the West, became impotent once that phase was over. It is also widely recognized that structural reform is essential...

  7. PART TWO FORMING A YEN BLOC IN ASIA
    • 6 A Japanese Perspective
      (pp. 109-127)

      My study of the possibility of forming a yen bloc from a Japanese perspective focuses on the implications for Japan itself of forming a monetary union with Asia.¹ If the benefits exceed the costs, then Japan would be likely to pursue it as a policy objective and try to remove barriers hindering its realization. With Asia now replacing the United States as Japan’s largest trading partner, stabilizing the yen’s effective exchange rate through the formation of a yen bloc should help insulate the Japanese economy from the adverse effects of fluctuations in the yen-dollar rate. In addition, increasing the use...

    • 7 An Asian Perspective
      (pp. 128-150)

      A yen bloc would not be formed to suit only Japan’s own interest. To deepen understanding of the issue, we need to add the perspective of the Asian countries, which would be potential members of the bloc.¹ Pegging exchange rates closer to the Japanese yen should contribute to macroeconomic stability in Asia’s developing countries (see chapter 4). This is particularly true for the Asian NIEs, which compete with Japan in international markets. By reducing the foreign exchange risk associated with yen-based transactions, such a major shift in Asia’s exchange rate policy should promote wider use of the yen as a...

    • 8 A Regional Perspective
      (pp. 151-174)

      The theory of optimum currency areas considers which countries should come together to form a monetary union. When applied to the possibility of monetary integration in Asia centering upon Japan, it provides a regional perspective of a yen bloc.¹

      The major cost associated with monetary integration arises from the abandonment of an independent monetary policy. Countries with similar economic structures can respond to a common shock with a common monetary policy, and the costs of giving up an independent monetary policy are relatively small. At the same time, the larger the differential in inflation rates among members, the more difficult...

    • 9 A Global Perspective
      (pp. 175-196)

      So far I have examined the yen bloc from the perspectives of Japan itself, of Asia’s developing countries, and of the Asian region as a whole, but the analysis would be incomplete without a discussion of its implications for the world economy. Analogous to the relations between regionalism and globalism widely discussed in trade policy, in this concluding chapter the question posed is whether, in the quest for a more stable international monetary order, currency blocs form building blocks or stumbling blocks. Lacking the advantage of hindsight, the answer to this question can only be based on a priori (and...

  8. References
    (pp. 197-204)
  9. Index
    (pp. 205-214)