East Asian Giants Strengthen Financial Ties

Japanese Prime Minister Yoshihiko Noda recently visited Beijing to meet with China’s leaders. The two governments revealed a surprising plan to use their own currencies in bilateral trade, instead of in U.S. dollars, as part of an effort to strengthen financial ties between the two economic giants. The pledges came as a shock; the countries are competitively the second and third largest economies in the world. They also struggle with political issues regarding territory and other disagreements.

The East Asian countries also agreed to encourage the sale of bonds denominated in China’s yuan by foreign markets, Japanese companies as well as the Japan Bank of International Cooperation in China’s markets. Until now, these markets have been mostly closed to investors from outside.

“To support the growing economic and financial ties between China and Japan, the leaders of China and Japan have agreed to enhance mutual cooperation in financial markets of both countries and encourage fiscal transactions between the two countries,” the governments said.

East Asia is the fastest-growing region in the world today. This recent development is likely to significantly reduce the U.S. dollar’s dominance in the area.