Comparative Study on the Deutsche Mark zone in Europe and "Yen zone" in Asia

In 1990's the Deutsche Mark became an international currency in Europe, getting rid of the dollar because of cheaper transaction cost. It has made it possible for EMS-currencies to be stable with each other. It proposes whether a system of stable foreign exchange rates, and as one of possible from for it, even a Yen-bloc can be formed in Asia following the way of Europe. This Grant-in-Aid for International Scientific Research (Joint Research) tried to clarify the structure of the Deutsche Mark zone in Europe and investigate in comparison with Europe whether a system of stable exchange rates in East Asia and even a Yen-bloc is possible. The research team held two international symposia in Hamburg and Tokyo and had interviews with banks, central banks, trading houses and manufacturing companies in England, Germany and South East Asia (Singapore, Malaysia and Hong Kong). Our conclusions are as follows : 1. The foreign exchange transaction cost of the Deutsche mark decreased about the end of 1980's and the beginning of the 1990's, since volatility between the Mark and the western European currencies lowered as a result of the success of the European Monetary System on the one hand and the use of the mark tremendously increased mainly because institutional investors began to invested portfolios on crossborder base in Europe on the other hand. 2. Not Frankfurt but London financial and foreign exchange market played the center of these transactions. So, the Mark zone is not similar to the Pound Sterling zone or the Dollar zone, where Britain and the USA played as the financial center. We call not so much the Market zone as the "European financial and currency area" based on crossborder portfolio transactions. 3. The Euro transforms the European financial and currency area into a single currency zone, so that the power of the Euro as an international currency seems not so strong as the D-Mark. 4. East Asia has been a perfect dollar zone and it is highly improbable that the forex transaction cost of the Yen becomes cheaper than that of the dollar. In comparison to Europe, there is no condition for a Yen bloc. It is important for Japan to evade so-called hollowing of Tokyo financial market and to design a regime of stable forex rates between the Yen and East Asian currencies.