Abstract
This Selected Issues paper on the Republic of Korea reviews near-term economic prospects and risks. Korea experiences solid growth with low inflation, and vulnerabilities to potential shocks appear low. With Korea aging at an almost unprecedented rate, spending on pensions, health, and long-term care could rise by as much as 11 percent of GDP over the long term, threatening fiscal sustainability. Although risks facing financial institutions appear quite manageable, the authorities have focused on risks to the highly indebted household sector.
III. Internationalization of the Won1
1. Korea has launched an ambitious program to deepen the development of its financial system and transform Seoul into a financial center. Under the financial hub initiative launched in 2005, the Korean authorities aim at transforming Seoul into Northeast Asia’s financial center. To do so, the authorities are deregulating the capital markets by easing barriers between different financial activities outside of banking and insurance and fully liberalizing the capital account. As remaining restrictions on the capital account are eliminated, the authorities intend to promote a greater international use of the won.
2. This note argues that the international role of the won can be expected to increase as Korea’s financial sector develops and cross-border transactions expand, but internationalization of the won should not precede financial development. It presents some key requirements that would need to be met to see the won being increasingly used internationally, and some possible implications for Korea. The analysis relies on the literature on international currencies and past experiences of internationalization, including that of the yen in the 1980s.
A. What is Internationalization of a Currency?
3. An internationalized currency is one which performs the functions of a medium of exchange, unit of account, and store of value beyond the borders of the nation that issues it. As a medium of exchange, an international currency helps the settlement of international trading transactions. As a unit of exchange, it is used for invoicing trading transactions and denominating financial instruments. As a store of value, it is used as an investment asset by nonresidents. This is not to be confused with the narrow concept of allowing the offshore use of a currency
4. Recent data show that only very few currencies qualify as international currencies. A close look at recent data on foreign exchange trading, official reserves composition, cross-border bank lending and international bond issuance shows that the dollar remains the key currency of choice in the international financial system. The dollar is also predominantly used as the currency of choice in invoicing of international trade, especially for commodities. At the same time, since its birth in 1999, the euro has acquired a sizable international dimension and its role is gradually rising. Apart from these two currencies, the yen, the pound and the Swiss franc play some role, albeit relatively minor ones. The international use of the yen is to a large extent supported by the importance of Japan in the world economy while the pound is backed by a major international financial center. The Swiss franc benefits from its role as a safe haven currency.
Share in World Foreign Exchange Trading, 2004
(In percent)
Citation: IMF Staff Country Reports 2007, 345; 10.5089/9781451822229.002.A003
Source: BIS, Triennial Central Bank Survey (March 2005).Share in World Official Foreign Exchange Reserves, 2005
(In percent)
Citation: IMF Staff Country Reports 2007, 345; 10.5089/9781451822229.002.A003
Source: IMF, Annual Report (2006).Share in World Cross-Border Bank Lending, December 2006
(In percent)
Citation: IMF Staff Country Reports 2007, 345; 10.5089/9781451822229.002.A003
Source: BIS, Quarterly Review (June 2007).Share in International Bonds Outstanding, March 2007
(In percent)
Citation: IMF Staff Country Reports 2007, 345; 10.5089/9781451822229.002.A003
Source: BIS, Quarterly Review (June 2007).B. Could Internationalizing the Won Help Seoul Become a Financial Hub?
5. Under the Financial Hub Initiative, Korea has ambitions to develop Seoul as a financial center. To achieve this objective, the authorities are planning to develop capital markets. Already, the Capital Market Consolidation Act, which aims at easing barriers between different capital market activities, such as securities business, asset management and derivatives transactions, has been passed. This should help promote the consolidation of securities firms and foster the development of strong and well-capitalized investment banks. The authorities have also taken several steps to develop the bond and money markets.2 In addition, the authorities aim at eliminating remaining restrictions on the capital account, so as to promote cross-border transactions, and allowing a greater international use of the won.
6. Having a developed financial center helps a national currency be used globally and vice versa. As was observed by Williams (1968), the international role of the pound until 1914 was largely due to the predominance of London as an international banking center. This was also the case for the U.S. dollar after World War II, and New York’s role as an international banking and financial center.3 At the same time, having an international currency can contribute to the development of a financial center. As the international use of a currency increases, financial transactions relying on the banking and financial institutions of the country expand, especially as those institutions have a comparative advantage in dealing in the currency in question. Eventually, this process can lead to the emergence of a financial center.
7. However, a currency can become internationalized without relying on an international financial center. This has been the case for the euro. Both Frankfurt and Paris have large financial markets, but they have not developed as international financial centers and a large share of cross-border financial transactions in euro is done in London.4 Perhaps, this is due to the predominance of London. Thanks to the “Big Bang” of the late 1980s and its large, open and deep financial markets, London has cemented its place as the preeminent center for financial intermediation in Europe. London captures a sizable share of financial transactions in euro, especially in foreign exchange trading transactions, and Paris and Frankfurt remain far behind. This could also be due to the specificities of the French and German financial systems: France and Germany have developed around bank-centered financial systems, with a smaller role for capital markets in financial intermediation. The continuing existence of a large public sector and cooperative (mutual) component in their banking system may have also delayed the development of market mechanisms and the internationalization of their financial systems.
Foreign Exchange Market Turnover
(As a share of total transactions)
Foreign Exchange Market Turnover
(As a share of total transactions)
| 1992 | 1995 | 1998 | 2001 | 2004 | |
|---|---|---|---|---|---|
| London | 27.0 | 29.5 | 32.5 | 31.2 | 31.3 |
| Paris | 3.1 | 3.7 | 3.7 | 3.0 | 2.6 |
| Frankfurt | 5.1 | 4.8 | 4.8 | 5.5 | 4.9 |
Foreign Exchange Market Turnover
(As a share of total transactions)
| 1992 | 1995 | 1998 | 2001 | 2004 | |
|---|---|---|---|---|---|
| London | 27.0 | 29.5 | 32.5 | 31.2 | 31.3 |
| Paris | 3.1 | 3.7 | 3.7 | 3.0 | 2.6 |
| Frankfurt | 5.1 | 4.8 | 4.8 | 5.5 | 4.9 |
8. An international financial center can emerge without the benefit of an international currency. Singapore is such a case. Despite having established itself as an international financial center, the authorities have since the early 1980s deliberately pursued a policy of noninternationalization of the Singapore dollar.5 This was possible as the restrictions in place were limited to selected asset-side banking transactions such as cross-border lending for speculative activities or for residents for use outside Singapore while no restrictions were imposed on the liability side or on bona fide capital account transactions. At the same time, policies to strengthen the banking sector, raise the institutional environment to international best practices and develop capital markets have been successful. However, cognizant that some of the restrictions were hampering the deepening of financial markets, Singapore has recently started relaxing its noninternationalization policy.
C. What Would be the Merits and Demerits for Korea of Internationalizing the Won?
9. There are several important benefits from having an international currency. First, thanks to its use in invoicing and payments, an international currency allows the country’s exporters, importers, borrowers and lenders to eliminate the exchange rate risk inherent to international trading and financial transactions. Of course, given the recent development of derivative products, this benefit may now be smaller than in the past. Second, it provides seignorage as a country can denominate its external liabilities in its own currency. Finally, it can foster the development of the country’s banks and other financial institutions owing to their comparative advantage in dealing in their own currency. Given the high degree of openness of Korea to trade—total trade represents almost three-quarters of GDP—and financial flows, those benefits could be significant. However, with Korea exporting a large share of its exports to industrial countries which tend to denominate their imports in their own currencies and to Asia which relies on the U.S. dollar for invoicing, the potential for a shift to won of exports invoicing may not be very large.
10. However, allowing a currency to internationalize could complicate the operation and design of monetary policy. First, it can increase demand for the country’s currency and affect the money supply. This was the reason why Germany and Japan persistently prevented the internationalization of their currencies.6 As Frankel (1984) noted: “The Japanese monetary authorities were concerned that extensive foreign holdings of their currency would reduce their degree of control over the money supply and increase the variability of the exchange rate”. For Germany, Tavlas (1996) argued that “Between the late 1960s and early 1980s, the Bundesbank attempted to limit the international use of the deutsche mark. Underlying this approach was the view that substantial swings in capital flows could interfere with domestic stabilization”. As a result, the international role of the yen and the deutsche mark did not become commensurate with the size of the Japanese and German economies. Internationalization of a currency can also affect the design of monetary policy. Given the increased impact abroad of its monetary policy decisions, a central bank could be inclined to include in its monetary policy function an international element. As Frenkel, Goldstein and Masson (1989) noted, “the independent pursuit of monetary policy objectives, with benign neglect of the international repercussions of national policy decisions for large countries with international currencies is not an option because these countries can exercise appreciable influence over prices, especially the real exchange rate”. This could make the conduct of monetary policy difficult, especially when domestic and international considerations clash. While given Korea’s relative size, this demerit is not expected to be large, the problems associated with the impact of won internationalization on monetary operations could be more significant. Complete capital account liberalization, by itself, creates challenges for monetary policy, especially when its objective is not fully consistent with exchange rate policy. Internationalizing the won, and in particular, allowing nonresidents greater use of the won for international financial transactions, could magnify these challenges.
D. What Are the Preconditions to Become an International Currency?
11. First of all, size does matter. The currency of a country that has a large share in international output, trade and finance has a natural advantage in becoming an international currency. This is because the larger the country’s share of world exports, the greater the chance that its currency will be used to invoice and settle international trading transactions. Additionally, the more its exports comprise differentiated manufactured products, and the larger its share of products that are imported by developing countries, the larger its role in invoicing. This is also true for financial transactions.
12. Second, to attain international currency status, capital and money markets in the country must be open, deep and well-developed. Capital account transactions should be free of control, so as to keep cross-border transaction costs low and allow international financial transactions. Financial markets must be deep so as to provide sufficient liquidity for transactions and offer a wide range of financial assets for nonresidents. Finally, they must be well-developed with a very efficient intermediation process so as to provide the highest possible return at the lowest possible risk for the nonresident holders of financial assets.
13. Finally, the confidence of foreigners in the maintenance of the currency value is critical for it to become an international currency. This is of course, because, given its role as a global store of value, the long-term value of other countries’ international reserves or financial investment will be conditional on the maintenance of the external value of the key currency. But more generally, economic agents prefer currencies with low inflation costs, in the form of relatively low inflation and low variability, for international trading and financial transactions. This, of course, depends on a track record of stable and predictable monetary and fiscal policies and more generally macroeconomic stability.
E. What is the Authorities’ Plan for Internationalizing the Won?
14. Given the increasing importance of Korea in the world economy, the authorities expect the won to play a bigger role in the international financial system. The Korean economy has become one of the world’s largest economies with Korea now a sizable exporter with a number of Korean companies world leaders in some markets. Korean financial markets are growing and developing fast. The Korean banking market is the third largest in Asia, and its equity market and bond markets are among the largest. However, the won is not widely used outside of Korea and won transactions are relatively small for an economy with such size and high degree of openness. The authorities understand that the won is not going to supplant the dollar, but a more commensurate international use of the won should be achievable.
Average Total Foreign Exchange Daily Transaction, 2004
Citation: IMF Staff Country Reports 2007, 345; 10.5089/9781451822229.002.A003
Source: BIS, Triennial Central Bank Survey (March 2005).15. Some of the foundations for an increased international role of the won are already in place. The banking system has been restructured and stabilized. It is now highly profitable and includes a substantial foreign presence. At the same time, in order to remove impediments to the development of capital markets, the authorities have launched major initiatives with the twin objectives of easing barriers between financial activities and the complete liberalization of capital account transactions which should help to bring the offshore won trading onshore. The authorities are rightly pursuing the development and the deepening of the financial system before proceeding to internationalizing the won, and as conditions are in place, a market-driven increase in the international use of the won could occur. In addition, Korea’s inflation performance has improved steadily and the monetary policy framework of the Bank of Korea helps bring predictability. Since the crisis and the adoption of the inflation targeting (IT) framework in 1998, inflation has come down. Headline inflation has averaged 3¼ percent with a standard deviation of around 2 percent while core inflation (until recently the target) was averaging 2¾ percent (standard deviation of 1½ percent). Some further improvement in the inflation performance could bring Korea in line with other advanced economies.
Selected Countries: Inflation Performance and Variability 1998-2006
Selected Countries: Inflation Performance and Variability 1998-2006
| Average CPI inflation | Standard deviation CPI inflation | |
|---|---|---|
| Korea | 3.3 | 1.9 |
| United States | 2.3 | 0.7 |
| Germany | 1.4 | 0.6 |
| Japan | -0.2 | 0.7 |
Selected Countries: Inflation Performance and Variability 1998-2006
| Average CPI inflation | Standard deviation CPI inflation | |
|---|---|---|
| Korea | 3.3 | 1.9 |
| United States | 2.3 | 0.7 |
| Germany | 1.4 | 0.6 |
| Japan | -0.2 | 0.7 |
16. Moreover, a plan for internationalizing the won is currently being implemented. Since the early 2000s, the authorities have taken a series of measures to develop the foreign exchange market and remove remaining restrictions on the capital account: among others, the ceiling on won borrowing from nonresidents has been raised to won 10 billion; the limit on the net foreign open position for domestic banks has been increased to 50 percent of capital; a dollar/won futures contract has been listed on the Chicago Mercantile Exchange. Furthermore, the authorities have announced a roadmap to boost further the international role of the won. In the first phase of the plan covering 2006–07, the authorities plan to lower the withholding tax rates for nonresidents on won bonds, consolidate the won accounts of similar nature held by nonresidents, and remove limits on exports/imports of the won. 7 This should help foster the overseas use of the won. In the second phase of the plan covering 2008–09, the authorities intend to expand the scope of won transactions exempt from reporting requirements.
Selected Measures of Medium and Long-Term Forex Liberalization Plan
Selected Measures of Medium and Long-Term Forex Liberalization Plan
| Phase 1: 2006-07 | Phase 2: 2008-09 | |
|---|---|---|
| Internationalization of the won | Expand won holdings by non-residents Pursue listing of won-dollar futures Lower withholding tax for non-residents on won bond income Consolidate won accounts for non-residents Remove Limits on export/import of the won |
Expand scope of won transactions exempted from reporting |
| Abolishment of mandatory collection of external credit | Convert current approval regime to reporting system | Repeal the mandatory collection |
| Permission of foreign exchange business | Expand scope of foreign exchange business for NBFI | Allow all kind of won-denominate financial businesses |
| Development of foreign exchange market | Extend the limit on net foreign open position Allow margin trading in foreign currency | Remove foreign exchange position |
Selected Measures of Medium and Long-Term Forex Liberalization Plan
| Phase 1: 2006-07 | Phase 2: 2008-09 | |
|---|---|---|
| Internationalization of the won | Expand won holdings by non-residents Pursue listing of won-dollar futures Lower withholding tax for non-residents on won bond income Consolidate won accounts for non-residents Remove Limits on export/import of the won |
Expand scope of won transactions exempted from reporting |
| Abolishment of mandatory collection of external credit | Convert current approval regime to reporting system | Repeal the mandatory collection |
| Permission of foreign exchange business | Expand scope of foreign exchange business for NBFI | Allow all kind of won-denominate financial businesses |
| Development of foreign exchange market | Extend the limit on net foreign open position Allow margin trading in foreign currency | Remove foreign exchange position |
F. What Could Seoul Learn from the Experience of the Internationalization of the Japanese Yen?
17. The issue of internationalization of the yen was triggered by the increased role of Japan in the world economy in the early 1980s. It was strongly pushed by the United States as a way to redress trade imbalances that existed at that time between the United States and Japan with the objective of appreciating the yen to address these. A U.S.-Japan Yen-Dollar Committee was set up in 1984 and measures to internationalize the yen and liberalize capital flows were agreed upon and initiated the same year.8
18. Several measures were taken to foster the international use of the yen. While some financial liberalization measures had been taken in the domestic financial market from the late 1970s, cross-border transactions remained tightly controlled. The report of the Yen-Dollar Committee sparked a number of measures to liberalize international yen transactions. At the same time, the authorities proceeded with the liberalization of domestic markets, notably through widening the range of domestic assets with market rates, relaxing the segmentation of domestic markets, expanding the scope of foreign participation in Japan’s financial markets and strengthening bank supervision. Along with these measures, the Japanese authorities promoted the establishment of an offshore banking market. Such offshore banking market was designed to make Tokyo an international financial center for yen transactions. Through this market, opened in December 1986, banks were able to accept yen deposits from nonresidents and conduct offshore transactions without applying restrictions and regulations that were imposed domestically, such as reserve requirements.
Liberalization Measures on International Yen Transactions 1984-89
Liberalization Measures on International Yen Transactions 1984-89
| Dec-84 | Nonresidents’ eligibility to issue Euro-yen bonds was extended to include foreign private corporations with at least A rating |
| Apr-85 | Nonresidents’ eligibility to issue Euro-yen bonds was further extended by doing away with regards to their financial position |
| Apr-85 | Withhodling tax on non-residents’ interest earning on Euro-yen bonds issued by Japanese residents was abolished |
| Jun-85 | Foreign banks were given access to the Euro-yen bond market |
| Nov-87 | Nonresidents were allowed to issue Euro-yen commercial paper |
| May-89 | Restrictions on Euro-yen lending to residents were relaxed |
Liberalization Measures on International Yen Transactions 1984-89
| Dec-84 | Nonresidents’ eligibility to issue Euro-yen bonds was extended to include foreign private corporations with at least A rating |
| Apr-85 | Nonresidents’ eligibility to issue Euro-yen bonds was further extended by doing away with regards to their financial position |
| Apr-85 | Withhodling tax on non-residents’ interest earning on Euro-yen bonds issued by Japanese residents was abolished |
| Jun-85 | Foreign banks were given access to the Euro-yen bond market |
| Nov-87 | Nonresidents were allowed to issue Euro-yen commercial paper |
| May-89 | Restrictions on Euro-yen lending to residents were relaxed |
19. The policy of internationalization of the yen has achieved mixed results. After some increase in the 1980s, the international use of the yen has declined: its use as an international reserve currency, in foreign exchange trading and international bond issuance is now lower than it was in 1990. Perhaps, this owes to an inadequate policy. The authorities had decided to opt for a two-track strategy: liberalizing the international use of the yen, while keeping the domestic yen market relatively controlled and regulated and minimizing the impact of the offshore liberalization on the domestic market. This two-track approach prevented the deepening of domestic financial markets and inflows into the Japanese financial markets. Moreover, as Japanese financial institutions faced difficulties in the 1990s, they retreated from overseas markets and the offshore yen market, most notably in Tokyo, contracted.9 As the same time, capital markets remained unevenly developed and heavily regulated. Finally, the overwhelming presence of the public financial system, especially the Postal Savings system may have delayed the development of market-based mechanisms, especially in the government bond market.10
International Use of the Yen: Recent Evolution of Some Selected Indicators
The data for 1980 is the average for 1981-84.
International Use of the Yen: Recent Evolution of Some Selected Indicators
| 1980 | 1990 | 2000 | 2005 | |
|---|---|---|---|---|
| Share in world total (in percent) | ||||
| Holding of International Reserves | 4.5 | 9.1 | 6.1 | 3.6 |
| Foreign Exchange Trading | … | 13.6 | 11.4 | 10.2 |
| Cross-border Lending | 1.8 | 11.2 | 9.2 | 3.9 |
| Outstanding International Bonds 1/ | 5.7 | 13.3 | 7.6 | 2.9 |
The data for 1980 is the average for 1981-84.
International Use of the Yen: Recent Evolution of Some Selected Indicators
| 1980 | 1990 | 2000 | 2005 | |
|---|---|---|---|---|
| Share in world total (in percent) | ||||
| Holding of International Reserves | 4.5 | 9.1 | 6.1 | 3.6 |
| Foreign Exchange Trading | … | 13.6 | 11.4 | 10.2 |
| Cross-border Lending | 1.8 | 11.2 | 9.2 | 3.9 |
| Outstanding International Bonds 1/ | 5.7 | 13.3 | 7.6 | 2.9 |
The data for 1980 is the average for 1981-84.
G. What Are the Implications for the Internationalization of the Won?
20. Reaching the status of an international currency could be difficult, but the use of the won in international financial transactions is expected to increase. There are only few currencies in the world with extensive international use as a medium of exchange, store of value and unit of account. Given the preeminence of these currencies and their underlying global economic, trading and financial strength and even assuming the continuation of the Korean’s economy performance, it is highly unlikely for the won to challenge these currencies as international currencies. However, the won could become an active currency in international financial transactions and as a currency of denomination for financial assets, and this should help develop Seoul as a financial center.
21. Internationalization of the won should not precede the deepening of financial markets and the strengthening of the institutional framework. A policy of internationalization of the won which promotes the international use of the currency would increase the economy’s exposure to sharp movements in capital flows. Ensuring that large cross-border flows do not adversely affect the economy would in turn require an efficient financial system and liquid capital markets able to deal with fluctuations in exchange rates and to manage risks adequately. In this context, having a strong institutional framework and supervisory regime is key.
22. Looking ahead, the authorities should further promote the development of the financial system. First of all, while the banking system has improved considerably, it is still largely domestic which limits markedly the offshore use of the won. With the Korean banking market approaching maturity, its expansion overseas is expected to accelerate. Second, capital markets need to deepen further, especially for the money and bond markets where liquidity is still an issue; promoting the emergence of various types of investors as well as help shift the intermediation away from a broker system to a market-making mechanism would help. In this respect, the Capital Market Consolidation Act is likely to provide a significant boost.
23. But more generally, as the Korean financial sector undergoes a major transformation, it will be important for the supervisory system to adapt. Of course, an open and transparent regulatory and supervisory system is a prerequisite. The move to risk-based supervision and management practices for financial institutions, as planned under Basel II, should help. Such a system should also provide stability and predictability. Moreover, the liberalization of cross-border transactions, as called for under the Foreign Exchange Master Development Plan, should be complete and the authorities should shift their role from the monitoring of foreign exchange transactions to that of monitoring the foreign exchange market.
References
European Central Bank, 2005, “Review of the International Role of the Euro” (December).
Frankel, J. A., 1984, “The Yen-Dollar Agreement: Liberalizing Japanese Capital Markets,” Policy Analyses in International Economics (Institute for International Economics)
Frenkel, J. A., M. Goldstein, and P. Masson, 1989, “International Dimensions of Monetary Policy: Coordination Versus Autonomy,” Federal Reserve of Kansas City.
Iwami, T., 1994, “The Internationalization of the Yen and Key Currency Questions,” IMF Working Paper No. 94/41 (Washington: International Monetary Fund).
Japan, Ministry of Finance, 1998, “Internationalization of the Yen (Interim Report),” Council on Foreign Exchange and Other Transactions Subcouncil on the Internationalization of the Yen (Tokyo).
Japan, Ministry of Finance, 1999, “Internationalization of the Yen for the 21st Century, Japan’s Response to Changes in Global Economic and Financial Environments,” Council on Foreign Exchange and Other Transactions (Tokyo)).
Kenen, P., 1988, “Managing Exchange Rates,” Chatham House Papers.
Lee, J., 2001, “Evolution of the Policy on Noninternationalization of the Singapore Dollar,” in Singapore: Selected Issues, IMF Country Paper No. 01/177 (Washington: International Monetary Fund).
Murase, T., 2000, “The Internationalization of the Yen: Essential Issues Overlooked,” Pacific Economic Paper.
Semblat, R., 2006, “A Financial Big Bang in Seoul? The Development of the Financial Sector in Korea,” in Republic of Korea: Selected Issues, IMF Country Paper No. 06/381 (Washington: International Monetary Fund).
Tavlas, G. S., 1996, “The International Use of Currencies,” in Functioning of the International Monetary System, edited by J. A. Frenkel, and M. Goldstein, Vol. 2 (Washington: International Monetary Fund).
Tavlas, G. S., and Y. Ozeki, 1992, “The Internationalization of Currencies: An Appraisal of the Japanese Yen,” IMF Occasional Paper No. 90 (Washington: International Monetary Fund).
Williams, D., 1968, “The Evolution of the Sterling System,” in Essays in Money and Banking in Honour of R. S. Sayer, eds. Charles R. Whittlesey, and John S.G. Wilson. (London: Oxford University Press).
Prepared by Romuald Semblat.
See Semblat (2006).
See Kenen (1988).
For the case of the deutsche mark, see Tavlas (1996). For the case of the yen, see Tavlas and Ozeki (1992).
Until recently, Korea imposed three types of won-denominated accounts for nonresidents: free won accounts for proceeds from current account transactions, nonresident domestic currency accounts for proceeds earned in won in Korea and nonresidents accounts for securities and bonds.
See Jeffrey Frankel (1984).
As is shown in Tavlas and Ozeki (1992), another issue for the yen is the low level of invoicing of Japanese exports and imports in yen. This is largely the case because a large share of exports go to industrial countries which tend to denominate their imports in their own currencies and to Asia which relies on the U.S. dollar for invoicing. It is also due to the fact that Japanese exporters tend to denominate their invoices in foreign currencies in order to maintain their market shares.
See Murase (2000).
