The launch of direct trading between the Chinese renminbi and Japanese yen is no doubt an important development in finance both in Asia and worldwide. It also gives Taiwan a rare opportunity to expand its influence in the region.
A spokesman for the International Monetary Fund expressed optimism about the development, while the United States, which is opposed to the establishment of an "Asian dollar," has reacted cautiously. Scholars and experts who participated in a forum on the issue organized by Want China Times' sister newspaper Want Daily, expressed satisfaction at the development but called on Taiwan to actively join in regional financial cooperation.
Relations between China and Japan are expected to grow stronger thanks to the currency arrangement; East Asian currencies could also become more independent as a result. Taiwan should keep this in mind when dealing with both China and Japan.
The US' weight in the world economy is in large part a result of the dollar's status as the global reserve currency. But China is now the world's second-largest economy, and the globalization of the renminbi appears increasingly inevitable. This is happening as Japan is finding it difficult to maintain export competitiveness due to its stubbornly strong currency.
The international status of the Chinese currency is likely to improve with support from the yen. Further, linking the two currencies could help Japan and China resist pressure from and dependence on the US.
The biggest problem faced by the financial system in East Asia is a lack of local currency bond markets. The lack of a strong global currency in Asia means that a strong yen alone cannot support these markets. Their combined economic clout could help Japan and China create an Asian currency bond market.
Nevertheless, the two countries are still mistrustful of each other, following a checkered history. This is where Taiwan can find its niche.
Taiwan relies on Japanese capital and equipment to create intermediate products, which China uses to create goods for exports. This makes Taiwan a critical bridge between Tokyo and Beijing. This role could be become even more vital if a Taiwan-Japan investment agreement is signed.
China's economy is undergoing a transformation, and the contribution of exports to its economy will fall rapidly as domestic consumption grows. The launch of direct trading in the Chinese and Japanese currencies gives Taiwan a chance to capitalize on this change.
Through establishing a currency trading arrangement, Taiwan could keep up with Hong Kong in the offshore renminbi business. Further, the new Taiwan dollar could become a more important part of Japan's financial sector through a Taiwanese offshore renminbi business center.
If Taiwan can triangulate relations between China, Japan and itself, it will secure a solid place in the new world of finance.