The ministry of higher education, science and innovation of the republic of uzbekistan

2. History of the monetary system, including the introduction of the yen

Overview:

The preceding discussion suggests that, in general, the determinants (i.e. inflation performance, development of financial markets, trade patterns) of international currency use imply some scope for a growing role for the yen in international financial transactions (though not in trade transactions). However, the direction and composition of Japan’s long-term capital outflows indicate that the process through which currencies become international have not been as conducive to the yen’s international use as is indicated by the magnitude of those outflows. In order to determine how these various factors have combined to influence the internationalization and regionalization of the yen, the following discussion presents data pertaining to the yen as an international unit of account, medium of exchange, and store of value.
Currency invoicing patterns:
The currency invoicing patterns of Japan’s exports and imports from 1975 through 1989 are provided in Table 5. The data show that the proportion of Japan’s exports denominated in yen rose from 17.5 percent in 1975 to 40 percent in 1983; the yen’s share declined to about 35 percent in the second half of the 1980s. (The share of Japanese exports denominated in U.S. dollars remained at over 50 percent in the second half of the 1980s.) With regard to invoicing of imports, the yen’s share rose steadily, from less than one percent in 1975, to about 14 percent in 1989; the dollar’s share of import invoicing fell somewhat, from 83 percent in 1983 to 77 percent in 1989.
The yen as a medium-of-exchange vehicle
Developments regarding the volume of currencies traded on foreign exchange markets are suggestive of the relative importance of currencies as unit-of-account and medium-of-exchange vehicles. ^42/ Data on the currency turnover in the interbank markets are available from surveys conducted by central banks in New York, London, and Tokyo in March 1986, April 1989, and at earlier dates in New York. These data have been reported in Tavlas (1991). The data show a marked increase in the share of the Japanese yen in the New York market; specifically, the yen’s share in New York trading rose from about 5 percent in 1980 to slightly more than 12.5 percent in 1989. In the London market, the yen’s share rose slightly, from 7 percent to 7.5 percent, while there was a slight decline in the yen’s share in the Tokyo market (to about 36 percent). By comparison, the deutsche mark’s share has been fairly steady in New York and Tokyo, while declining modestly in London. The data also indicate that the interbank markets continued to be dominated by transactions involving the U.S. dollar.
Another measure of a currency’s role as an international medium of exchange is its use in foreign exchange market intervention by central banks. In this connection, the available data—reported in Tavlas (1991)—indicate that there is relatively little use of the yen. For example, intervention within the European Monetary System is primarily in deutsche mark and U.S. dollars. Intervention by the U.S. monetary authorities during the 1980s has been mostly in deutsche mark and yen; the yen’s share of total U.S. intervention rose from about 12 percent in the early 1980s to about 40 percent in the late 1980s, although part of this increase could represent the coordinated efforts undertaken by central banks to support the Japanese currency.

Foreign yen claims can be classified into three broad categories: claims held in Japan by nonresidents. These claims are predominantly on Japanese banks and the public sector; claims held outside Japan by nonresidents in the form of euro-yen (short-term deposits); and claims held outside Japan by nonresidents in the form of euro-yen (long-term) bonds.
Data for each of these categories (denominated in U.S. dollars) over the period 1982 through 1989 are reported in Table 6. This table, which for purposes of comparison also includes foreign non-yen claims in Japan, shows the following: borrowing in Japan from foreigners is done mostly by the banking sector. In fact, the public sector’s share of such borrowing has declined in recent years. The share of yen-denominated borrowing by the banking sector rose from 21 percent in the first part of the 1980s, to 33 percent in 1989; nevertheless, within the banking sector (as noted in the previous section), the predominance of borrowing from foreigners is in non-yen denominated instruments (67 percent in 1989); euro-yen claims by foreigners are significantly less than claims (both yen-denominated and non-yen) by foreigners in Japan; and euro-yen bonds grew by a multiple of more than 15 (from $5.6 billion to $87.7 billion) during the 1980s whereas euro-yen deposits grew by a multiple of less than five.