Growth of the Euro as an international currency and the use of the Yen in East Asia

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The German Mark became the FX vehicle currency on the European FX spot markets around 1990, pushing out the US dollar. The vehicle currency role is essential for an international currency. This research investigates firstly the growth of the Euro as an international currency associated with the development of the German Mark and the financial and capital markets in the Euro area. Then, we apply the above-mentioned development to East Asia and aim to examine policy measures to facilitate the international use of the Yen.The Euro as financing currency (par excellence in bond market) has expanded more than previously expected. But FX transactions are made in a decentralized way on FX markets of each Euro area country and the institutional consolidation on the financial markets is still to be seen. Furthermore the function of the Euro as a FX vehicle currency is weaker than the German Mark because international transactions among the Euro area countries tended to be domestic. Even though E … More uro has the merit derived from Euro money and capital market, Euro does not show its expected ability so far and will not be able to narrow the gap with U.S. dollar.With regard to Euro, the conclusions are as follows. (1) Euro is an international currency in the Euro area. (2) Euro has all functions as the international currency from trade intermediation to global money transaction. In this regard, the Euro is different from German Mark. (3) It is difficult for the time being to expect that Euro will be an international currency comparative to U.S. dollar because both the financial and capital markets and the FX markets in the Euro area do not amalgamated into single yet.As for the internationalization of Yen, we confirmed that the use of Yen increased in Thailand at the end of the 1990s. This is because that Japanese banks and overseas affiliated companies go ahead with Yen ―denominated transactions taking so-called the "Japan premium" into account. The biggest policy issue is how to take over this trend. Less