The Dollar's Status And Prospect As The Invoicing Currency In East Asia

Since the 1950 s,as East Asian countries have gradually integrated into the U.S.-led global economic system,the U.S.dollar has become the most widely used invoicing currency for East Asian countries in internal and external trade,resulting profound influence on economic development in East Asia and also in the world.This paper uses international political economics and economic theory to construct a complete analytical framework from the perspective of international public goods supply and demand.And it mainly focuses on studying the evolution of the U.S.dollar‘s status as the East Asian invoicing currency,analyzing the factors that determine the dollar‘s status,and exploring the impact of the internationalization of the Yen and the Renminbi on the statue of dollar in East Asia.The first part discusses the changes of U.S.dollar‘s status as invoicing currency in East Asia and its influence.After the Second World War,along with the evolution of the international monetary system and East Asian trading network,the development of the U.S.dollar‘s status in East Asian have experienced three stages: The first stage is the 50s-70 s of 20 th century.At that time,the United States dominated the international currency and economic system.In the most of East Asian countries,the U.S.dollar had become the most important medium for trade.The second stage is from the late 1970 s to the early 21 st century,when the Yen started its internationalization process.The internationalization of Yen has reduced the U.S.dollar's share in foreign trade in some East Asian countries,such as Japan,but it failed to erode the dominant foundation of the U.S.dollar.The third stage is after the outbreak of the global financial crisis in 2008.China started to promote the Renminbi cross-border trade settlement.So far,the use of Renminbi in China‘s foreign trade has increased.But for the East Asia,the dollar remains as the most important invoicing currency.The status of dollar as invoicing currency has brought profound influence on the economic development of East Asia.First of all,because the U.S.dollar is the most essential invoicing currency,the East Asia‘s currency system has gradually developed into the "dollar standard".Second,the dollar‘s invoicing currency status makes the “trade-currency” cycle between East Asia and the United States possible,supporting the core position of the U.S.dollar in the international monetary system.Finally,the East Asian dollar standard and the “trade-currency” cycle have brought many problems to the East Asia and even the global economy,which has not only exacerbated the economic imbalance between East Asia and the United States,but also made the East Asian countries extremely vulnerable to the international capital flows caused by the dollar cycle.The second part discusses the bases which support the dollar‘s status as invoicing currency in East Asian trade.When exploring the determinants of the dollar status in trade,most of the previous studies focused on the private choice of companies and ignored the impact of the international monetary system on the range of corporate choices.This paper attempts to construct a new analytical framework that fully considers the important role of political factors in the supply of invoicing currency for international trade.It is believed that the choices of companies should first be based on a set of alternative currencies given by the current monetary system,and then considers the role of market structure,transaction costs and other factors.Invoicing currency is a kind of international public goods.It is determined by supply and demand.From the perspective of supply,political factors play a crucial role.According to hegemonic stability theories,hegemony country is the only agency which is capable of supplying international public goods.Hegemony stems from the structural power in security,production,finance,and knowledge.From the perspective of demand,economic factors such as market structure,currency stability,transaction cost affect the companies‘ choice on invoicing currency.The dominant position of United States in both political and economic areas underpins the U.S.dollar‘s invoicing currency status in East Asia.The third part discusses the impact of the Yen internationalization on the U.S.dollar‘s status as invoicing currency in East Asia.The Yen started its internationalization in the early 1980 s,and expanding the use of the Yen in international trade was a very important part of the Yen internationalization.However,the Yen internationalization had not achieved its desired results.In foreign trade,the use of Yen was still low,compared with other industrial countries.There are many reasons can explain why the Yen internationalization had not reached its target: First,Japan has never had enough regional hegemony to support its role of East Asian invoicing currency provider.Japan‘s military capabilities are limited due to the constraints of the “U.S.-Japan alliance” and the domestic constitution as well as other laws and regulations.The failure of domestic financial reforms has prevented Japan from creating a favorable financial environment for the internationalization of Yen.And historical issues have always plagued Japan‘s relations with neighboring countries in East Asia,making it impossible for Japan to become the unanimously recognized leader of East Asian.Second,Japan‘s economic power is not enough to allow the Yen to replace the dollar‘s role in East Asian trade.Factors such as market structure,currency stability,and transaction costs are not conducive to the expansion of the Yen in foreign trade.Although the Yen internationalization has not fundamentally changed the status of the U.S.dollar as the main invoicing currency in East Asia,the expansion of Japan‘s political and economic influence has increased the proportion of the use of Yen in East Asian trade to some extent,and has increased the Yen‘s regional trade currency status.The fourth part discusses the impact of RMB internationalization on the U.S.dollar‘s status as invoicing currency in East Asia.With the rise of the Chinese economy,the use of the Renminbi in international trade has continued to expand.Since China officially launched the Renminbi internationalization in 2009,after years of development,the internationalization of Renminbi has achieved some impressive results in the aspect of trade settlement,financial investment,and international reserves.The rise of China and the implementation of the Renminbi internationalization have created favorable conditions for Renminbi chasing the leading position of invoicing currency in East Asia.On the one hand,the growth of comprehensive national strength has enabled China to become a potential invoicing currency provider for regional trade.On the other hand,the economic power has increased the demand for Renminbi from trading companies.However,judging from the current situation,the U.S.is still the largest invoicing currency provider in East Asia and maintains its advantages in the four structural powers of security,production,finance,and knowledge.The U.S.dollar is still largely and extensively used in internal and external trade of East Asia.The fifth part discusses the prospects of East Asian‘s invoicing currency under the background of the implementation of “the Belt and Road”."The Belt and Road" comprehensively considers domestic and international situations and proposes a development plan for Asia and the world to achieve co-prosperity.China should use "the Belt and Road" to build a new China-centric pattern of regional trade by improving trade efficiency with countries along the route,strengthening regional industrial division and cooperation,and enhancing the status of regional market provider.It can be expected that the implementation of “the Belt and Road” will change the political and economic order in East Asia and even the world.It will also have a profound impact on the future invoicing currency structure in East Asia.Under the influence of “the Belt and Road”,the Yen not only can hardly shake the fundamental position of the dollar,but also loses its advantages in competition with the Renminbi.Therefore,the outlook for the Yen as invoicing currency in East Asia is bleak.With China‘s growing political and economic strength,the Renminbi has gradually emerged in international currency competition and has the potential to become the dominant invoicing currency in East Asia.However,the U.S.dollar has a set of international system and institutions dominated by the U.S.as a support.In the absence of major changes in the international system,the U.S.dollar‘s status as invoicing currency in East Asian remains stable.