«KAMIKUBO Masato Introduction Analytical Framework: Core Executive Theory Internationalisation of the Yen and the Yuan Analysis: Comparison of ...»
‘Internationalisation of Yen’ or ‘Internationalisation
of Yuan’: Policy Science of Domestic Decisionmaking Processes for Asian Monetary Cooperation
Analytical Framework: Core Executive Theory
Internationalisation of the Yen and the Yuan
Analysis: Comparison of Japanese and Chinese International Monetary Policy Processes
Since the global financial crisis of, China has been expanding its influence in the
international financial community. Zhou Xiaochuan, the governor of the People’s Bank of China, drew attention with his mention of the possibility that IMF’s special disposal right (SDR) could be a new currency regime replacing the current dollar standard system (Zhow, ). In addition, in line with the rapid growth of the Chinese economy, the yuan distribution volume in neighboring states and regions has increased, and the yuan has become the reserve currency in some countries (Ohnishi, ). Currently attention is focused in particular on the trend of the internationalisation of the yuan in the international financial community.
On the other hand, Japan also acted proactively in the financial crisis, with moves such as trillion yen in financial assistance for the IMF. However, Japan was criticised for its failure to provide a strong voice in the international financial community. In contrast to China, Japan appealed for the continuation of the dollar standard system, but did not gain much acceptance in the international financial community (Katada, ). Japan has been endeavoring to construct an international monetary cooperation system, and has provided leadership in economic assistance measures for the Asian currency crisis and in the construction of financial safety nets for Asian regions. Nevertheless, Japan had not exercised strong leadership in promoting the internationalisation of yen (Amyx, ).
Various economics and international relations studies have examined the issues of Mar.
internationalisation of the yen and internationalisation of the yuan. In economics, the internationalisation of the yen and the yuan has been the subject of policy debate. In general, economists have pointed out that the cause of the Asian currency crisis was the excessive pegging of Asian currencies to the US dollar, and have insisted on the necessity of Asian monetary cooperation and on the introduction of a common currency. In that light, there has been an
emphasis on the importance of the internationalisation of major currencies in Asia (Kwan, :
Murase, ). In addition, some experts have proposed a strategy for the creation of the Asian Currency Unit (ACU), a step to be taken subsequent to the internationalisation ofthe yen and the yuan (Ogawa and Ito, ). However, economists have not been able to provide an explanation for the failure of their proposed strategy of internationalising the yen and yuan to develop.
In international relations studies, one school of thought is that currency diplomacy can be also positioned on the projected line of reasoning underlying the view that Japanese diplomacy is ‘reactive’ (Terada, ). Adherents to that view point out that Japan lacks political leadership not only in international finance but also in currency diplomacy (Amyx, ), and has been acting only to maintain its international influence at the same level as China, in light of Japan's awareness of China’s rapidly growing influence in international finance (Terada, : ). Some studies support this view, pointing to the level of pressure from Japanese politicians and domestic industry concerning the delay in the internationalisation of the yen (Imamatsu, ; Katada, ).
Although international relations researchers point out the absence of Japan’s strategy and an increase in domestic pressure, they cannot provide a convincing mechanism of how such things occur. In international relations studies it is thought that Japan is an actor and its domestic economy is a black box (Shinoda, ). Analysis of domestic policymaking process is the domain of political science, but very few analyses consider the international finance and currency policies of International Bureau, Ministry of Finance (MOF) in Japan to be a political science research subject. Using a political science analytical approach, this paper undertakes an analysis of Japan's decision-making process for international finance and currency policies, until now regarded in international relations studies as a black box. The findings will be applied to an examination of the assertion by some international relations studies that Japan lacks strategy. In fact, Japan has constructed concrete international finance and currency policy strategy, mainly through International Bureau, MOF, but the political leadership to realize that strategy has been lacking.
This paper pursues the cause of this political leadership vacuum, focusing not on the capacity of politicians but on a comparison with China, to reveal that the true cause is a structural problem in Japan’s policy making process.
The structure of this paper is as follows. First, core executive theory is used to lay out the paper’s analytical framework. Then, the core executive structure of the policymaking process in Japan and China is clarified, and the two countries' processes are compared. A case study ‘Internationalisation of Yen’ or ‘Internationalisation of Yuan’ KAMIKUBO compares past processes of the internationalisation of free currency in Japan and China, using the paper’s analytical framework. The paper’s claim is as follows. In China, thanks to the topdown decision-making of the Communist Party and the State Council, the leader can easily display political leadership in the international financial community. In Japan, on the other hand, due to the bottom-up decision making structure in MOF, the Cabinet does not have the substantive right to decide. In addition, in that structure the Cabinet easily feels pressure from political tribes (zoku-giin) and the business world. As a result, Japan is unable to display political leadership in the international financial community.
This paper presents a comparison of the international finance and currency policymaking processes of Japan and in China, using the concept of the ‘core executive' (Rhodes and Dunleavy, ; Rhodes, ) which is currently drawing attention in policymaking process studies in Japan and overseas. ‘Core executive’ consists of central figures such as the Prime Minister, the Cabinet, the Cabinet Committee and high-level bureaucrats, i.e. those who eventually manage conflicts among organs within the central government. This is a model for the analysis of the informal meetings of those people; current systems and networks for negotiations among ministries and agencies; and the salient interdependences in customary practice (Rhodes, ). This model has been attracting heightened attention globally and it is thought to be applicable to Japan’s policymaking system (Ito, ).
In comparative politics studies, there has been almost no attempt to compare the political institutions of Japan and China. The reason for this lay in the differences between the political regimes: China is a communist regime while Japan is a democratic regime. Basically, Japan has been the subject of comparative studies with western democratic countries in terms of the parliamentary cabinet system, universal suffrage system, cabinet system, and bureaucracy (Silberman, ).
Still, it can be pointed out that the political systems of Japan and China have some similarities. For example, both countries were governed for a long time by one-party rule: the Liberal Democratic Party (LDP) in Japan and the Communist party in China. Although in Japan, the government changed in and one-party dominant system has ended, its political and administrative systems, which were constructed under the long-term rein, have many points in common with those of China. Concretely, the political and administrative systems have a dual existence, in party organisation and government organisation. In western democratic countries, on the other hand, policymaking is unified in the cabinet. Many western countries adopted the parliamentary system and there the majority party in the parliament (the ruling party) organises the Cabinet. Therefore, members of the ruling party participate in the Cabinet but the party does Mar.
not independently formulate policy (Onishi, :
Exceptional among the democratic countries which have adopted the parliamentary system, Japan has the ruling party taking dualistic part, along with the Cabinet, in policy-making. It is mainly socialist countries, such as China with its established one-party rule, which have such an organisational structure. In the case of Japan, since the rein of LDP and coalition governments centred around LDP has continued for such a long time (with months' exception in the period from and ), the political and administrative rules were established on the basis of the one-party rule principle. However, one profound difference between Japan and China is that the Communist party has the final word and ‘the government’s leadership by the Communist party’ is clearly specified in the constitution, while in Japan the Cabinet has the final decision making rights (Murakawa, ).
This chapter presents a classification of the core executive engaged in policymaking in China (Onishi, and other).
The Communist Party has the final word on Chinese policy decisions. The Communist Party Central Committee makes decision directly about matters such as diplomacy, economic policy, ethnic minorities and disasters. It also has final decision-making authority over the execution of policy. Various actors play important roles in policymaking in the Communist Party; the top decision makers within the Party are the nine major politburo standing committee members.
There is a hierarchy among those members: the top person is Hu Jintao, General Secretary of the Communist Party, President of the People’s Republic of China, and Chairman of the Central Military Commission. Second in the power hierarchy is Wu Bangguo, Chairman of the Standing Committee of the National People’s Congress; third is Wen Jiabao, Premier and Party Secretary of the State Council of the People’s Republic of China. Under the nine major members there are politburo members including the politburo standing committee members mentioned above. Under the politburo standing committee members are Central Committee members (including the above ), followed by candidates for Central Committee membership. The person in charge of international monetary and currency policy is number six, Huang Ju, Executive Vice Premier of the People’s Republic of China.
International monetary and currency policy are considered to be among the most important sectors of policy, and final decisions in those sectors are made directly by Hu Jintao and Wen Jiabao (Onishi, :
-) The State Council, equivalent to Japan’s Cabinet, formulates and executes concrete policy based on the fundamental principles of the Communist Party and its instructions. As mentioned previously, Wen Jiabao, Premier and Party Secretary of the State Council, is responsible for routine procedures regarding international monetary and currency policy. In addition, Huang Ju (Executive ‘Internationalisation of Yen’ or ‘Internationalisation of Yuan’ KAMIKUBO
Vice Premier) and Zhou Xiaochuan, (Governor of the People’s Bank of China) participate in the State Council. Although his ranking in the Communist Party is not high, Zhou Xiaochuan is well trusted by Wen Jiabao and attends the Standing Committee of China’s People’s Congress (equivalent to Cabinet meetings in Japan) despite his not being an official member. Executive members of the State Council are basically Communist Party members and the State Council and the Communist Party are virtually a single entity (Ohnishi, :- ).
Concrete details of the Chinese international monetary and currency policy planning process are as follows. First, the Vice Premier of the State Council and the members in charge in the State Council conduct hearings to ( ) receive reports on economic situations from the central Mar.
government ministries (such as the National Development and Reform Commission, the People’s Bank of China, and the Ministry of Finance) and a group of scholars with strong influence on policymaking in the State of Council, and ( ) to draw up lists of issues in international monetary and currency policy. Then, the Vice Premier in charge submits the international monetary and currency policy agenda to the Premier of the State Council. The Premier alone conducts a further round of hearings, receiving reports regarding agenda setting from related departments and scholars. Based on the findings of the hearings the State Council makes the final decisions.
Since international monetary and currency policy work requires great expertise, the Premier is responsible for carrying out routine practices in coordination with the departments in charge.
However, important issues require consultation with the Party and decisions are made and submitted under the names of both the Party and the State Council (Tanaka, : - ).
In China, the role of scholars and experts is not limited to offering opinions to the State Council. When the Communist Party and the State Council formulate new policy, scholars and experts announce those policies to the people of China and to the world in the form of papers and research outcomes submitted to academic journals and the mass media. Regarding matters such as finance, currency exchange and international trade, it is thought that experts including Wu Jinglian, Hu Angang (professor at Tsinghua University) and Yu Yongding have extensive influence (Kwan, ).
The central government ministries are organizations which execute policy according to the decisions of the State Council. The National Development and Reform Commission, the People’s Bank of China, and the Ministry of Finance are all involved in international monetary and currency policy. It is important to note that the central government ministries do not formulate policy: in that regard China's ministries are different from Japan’s central government ministries (Onishi, :- ).