Essay on Pros and Cons of Joining a Currency Union: Japan

1255 Words 6 Pages
Introduction
The goal of every economist and politician is to optimize the economy of their respective countries in a way that improves the global economy under limited resources.
Adopting a currency union is beneficial in many cases, but harmful in others. A currency union consists of multiple nations sharing a single form of currency, often comprised of a single market and a customs union. Participating countries may also affect one another’s economic/foreign policies.
As it is commonly known, Japan’s economy boomed after World War II. By the eighties, Japan went from having a low wage economy to one of the higher wage economies. However, within the next decade, the economy became stagnant. Even through large public works programs and
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One benefit to a currency union is the ability to transfer countries’ borders easier. Under Prime Minister Shanzo Abe, immigration is welcomed and women are encouraged to enter the workforce. These policies increase domestic consumption and raise the national income. It also increases the size of the workforce which has contributed to an unemployment rate as low as 3.7% as recent as December of 2013.
Currently, the Japanese Yen is worth .061 Chinese Yuan. With this exchange rate, the Yen is weaker than the Yuan. Since this open economy is currently experiencing a negative trade balance, we can infer that the net capital outflow of the country is negative and therefore national saving is lower than its investments. If foreign markets were to expand fiscal policy the world savings would decrease, reducing investment at home and increasing the supply of dollars; therefore, causing the real exchange rate to fall. With the lower valued Yen, entering a currency union and adopting a single form of currency could benefit Japan. Because the Yen is also considered weak in relation to the United States’ dollar and British pound, forming a single, stronger unit of money could increase the exchange rate between these foreign markets. According to Figure 1, the Yen hardly competes with currencies of other countries in the region. This shows that without an exchange rate, Japan would be able to improve trade and foreign investment might

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