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date: 21 July 2019

Summary and Keywords

East Asian monetary systems were traditionally based on commodity monies, the most famous of which were round copper coins (Cash) with a square central hole, and silver ingots (Tael, from around 1000 ce). While issue of the former was in the hand of the state, silver bars were privately produced and controlled. The Tael nonetheless served as a unit of account also in government ledgers. China was the first nation worldwide to use paper money backed by bullion reserve (c. 1000–1500), but fiat monies were not readily accepted by markets. Gold coins were exclusively used in Japan from circa 1600. With the discovery of Mexican silver, China and Japan became part of the silver-based world economy. Japan adopted the Gold Standard in 1897 and gained access to the world’s financial markets, while China’s currency landscape, even after modernization, remained fragmented and decentralized. With a favorable exchange rate against the US$, Japan recovered after World War II. The US$ devaluation in the Plaza Accord 1985 did not stop that boom. Excessive loans induced the asset price bubble of 1987. In the “lost decade” until 2000, the Bank of Japan pursued a volatile monetary policy, so in 1998 it was necessary to induce liberalization of the banking sector. Reform in the financial sector was also begun in South Korea after the Asian Crisis of 1997. The Chinese policy of Reform and Opening in 1978 first led to inflation and then to undervaluation of the Renminbi (Yuan), which supported the unique economic growth. The currency was made convertible in 1996 and was in 2005 pegged to a basket of foreign currencies. China’s banking system remains underdeveloped and suffers from the burden of indebted state-owned enterprises. China has accumulated huge amounts of foreign exchange. The RMB might become an anchor currency of a financial regionalism.

Keywords: money, currency, coinage, Tael, silver, gold, paper money, China, Japan, Korea

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