The depreciation of the U.S. dollar in 1995 rekindled discussion about the organization of the international monetary system, including calls to expand the roles of the yen and the deutsche mark as reserve currencies. The yen has not assumed a greater role because sufficient yen instruments are unavailable. The measures that make the yen relatively illiquid result partly from public debt management policy and control over the competitive advantage of the government in securities issuance. From a narrow perspective, it is quite easy to expand the role of the yen as a reserve currency: raise the supply of Treasury bills to approximately \60 trillion, eliminate the transaction tax on government securities, and let the Bank of Japan be a banker for foreign central banks. Such changes, however, imply a loss of control over the holders of the most liquid instruments in the Japanese money market.
Keywords: Reserve currency;Internationalization;Market liquidity;Transaction tax;Securities settlement
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.