How Japan remained on the Gold Standard despite unsustainable external debt |
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| Institution: | 1. Dept. Political Science, University of Genoa, Italy;2. Dept. of Economics, University of Genoa, Italy;1. Jagiellonian University in Krakow, ul. Gołębia 13, 31-007 Kraków, Poland;2. Warsaw School of Economics, ul. Madalińskiego 6/8, 02-513 Warszawa, Poland;3. Warsaw School of Economics and IZA, ul. Madalińskiego 6/8, 02-513 Warszawa, Poland;4. University of Oxford, George Street, Oxford OX1 2RL, UK;1. Central Michigan University, 321 Sloan Hall, Mount Pleasant, MI 48859, United States;2. University of Arizona, 1130 E. Helen Street, McClelland Hall 401, Tucson, AZ 85721, United States;1. Department of Economics, Wesleyan University, Middletown, CT 06459, USA;2. Institute for Quantitative Social Science, Harvard University, Cambridge, MA 02138, USA;3. Department of Economics and East Asian Studies Program, Wesleyan University, Middletown, CT 06459, USA;1. University of Jyvaskyla, Finland;2. Appalachian State University, USA;1. Caltech HSS, 228-77 Caltech, Pasadena, CA 91125 USA;2. INRA-Paris School of Economics, 48, Boulevard Jourdan, 75014 Paris France |
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| Abstract: | In the period of the classic gold standard, most peripheral countries were frequently affected by so-called sudden stops as well as by financial and currency crises. Yet pre-War Japan was an outlier. Though its level of external debt was not sustainable, Japan issued many government foreign loans to cover its current account deficits, was never affected by currency crises, and was never forced to suspend convertibility. We argue that, from the late nineteenth century until just before World War I, Japan and Britain engaged in a politico-economic exchange: Japan offered to protect Britain's economic and political interests in the Far East provided that Britain gave the rising Asian power access to financial markets—namely, in the City of London. |
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