Coping with a New Monetary Order after the Global Crisis
Chapter 3: Destined to fail? The history of the yen bloc before the Second World War
For closer monetary and fi nancial cooperation to occur, leading countries need to assume corresponding responsibilities because the viability of a monetary union depends on their responsible actions to boost regional solidarity and cohesion. The past experience of the yen bloc shows that Imperial Japan’s absence of such responsibilities was the main cause for the failure of the so- called ‘Asian Co- prosperity Sphere’. Indeed, unlike the experience of the silver currency bloc in the nineteenth century, the formation of the yen bloc by Japan did not result in the economic and monetary integration of East Asian economies. Rather, it led to the increasing disintegration of the East Asian economy, refuting the endogeneity of the optimum currency area criteria. This is demonstrated by the fact that the gap in the infl ation rate and income level between Japan and other East Asian countries widened during the Japanese occupation period. This experience was frustrating for Asian countries, for it meant that the regionalization which centred on the Japanese yen was for the prosperity of Japan only, and not for the co- prosperity of the Asian region as a whole. The yen bloc era is still deeply relevant. Its memory still haunts East Asian countries to this day, nourishing their distrust of Japan, and throws a shadow on the monetary and trade cooperation movements in East Asia. This explains why ideas about regional monetary cooperation were rarely heard of until the eruption of the Asian currency crises.
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