Rise of the Yuan: Export Similarity and Comparisons to the Yen

According to recent studies, the yuan has become a reference currency rivaling the US dollar in East Asia within the past decade. The yen never gained enough influence to challenge that of the dollar despite holding a similar share of trade 20 years ago as China does now in the region. This paper asks why the yuan became a reference currency in East Asia while the yen did not 20 years ago. This study hypothesizes that a reason for this discrepancy is that China competes more with its neighbors today than Japan did 20 years ago. In order to test this hypothesis, this study uses an export similarity method developed by Finger and Kreinin (1979) alongside a multiple regression analysis. The data indicates that export similarity plays a major role in increasing regional currency influence. As a result, this paper finds a developmental difference between the renminbi and yen.