ABSTRACT
In the 1980s, major changes have taken place in the structure of international assets and liabilities. Japan has swiftly become the world's largest net lender, with net assets of $240 billion at the end of 1987. Her banks are now acting as international financial intermediaries, with Japan's short-term net liabilities of $169 billion balancing against long-term net assets of $410 billion. This position is analogous in some ways to that of American banks in the post-war period from 1945 to 1980 and by British banks in the nineteenth and early twentieth centuries, as bankers to the world, borrowing short and lending long. The British banks built up their intermediary position gradually over the nineteenth century, and by the turn of the century the gold standard had effectively become a key currency system based on the pound sterling (Lindert 1969). During the first half of the twentieth century culminating in the post-Second World War period, American banks replaced British banks as financial intermediaries to the world, based on the strong US external payments position. At the same time, the dollar gradually took over from the pound sterling the role of leading international currency, both as a reserve currency for monetary authorities and as a vehicle currency in private exchange market transactions. It is clear that Japanese banks are now the largest financial intermediaries internationally. The question underlying this chapter is whether under current conditions there are reasons to believe that a similar process of evolution will lead the
Japanese yen to rival the dollar as reserve currency and vehicle currency in foreign exchange markets.
