Currency Blocs: The Yen

Abstract

Historically, unilateral political attempts at boosting the liquidity and prestige of a currency have rarely been successful. In the context of catastrophic events as, for instance, a World War, several countries have nevertheless experimented with schemes to develop currency blocs. This chapter describes the Japanese experiment with establishing an economic zone in which the yen was either the main or the sole currency of reference. We proceed chronologically. Taiwan and Korea are explained as consolidating currency policy in the nascent Japanese empire. World War I temporarily reversed Japan’s balance of payments problem. It heralded bold attempts at incorporating China within the Japanese yen-bloc, by means of aggressive lending schemes. Although the latter failed, the yen-bloc became an important political objective throughout the 1930s. The chapter explores the financial technology that governed the monetary set-up of the wartime empire, and it attempts to explain why it contained the seeds of its destruction.

破綻しますよ、いつかは破綻しますよ、それは (hatan shimasuyo; itsuka hatan shimasuyo, sore wa)

“Of course [such scheme] is bound to implode; of course it will implode at some time.”

Ohara Masahiroshi 小原正弘, former Yokohama Specie Bank banker and once appointee to the Federal Reserve Bank of China (中國聯合準備銀行)

in: S.a. En no sensō “The War of the [Continental] Yen”『圓の戦争』

“Japan and the yen ha[d] an overpowering dominance, and arrangements [were] made with an eye to the needs of Japan and the yen, rather than in consideration of the other areas and their currencies.”

Hunsberger, “The Yen Bloc in Japan’s Expansion Program,” p. 251.