In This Review
Currencies and Politics in the United States, Germany, and Japan

Currencies and Politics in the United States, Germany, and Japan

By C. Randall Henning

Institute For International Economics, 1994, 406 pp.

Henning, a political scientist, addresses the formulation and execution of monetary policy, with emphasis on its international aspects, in Germany, Japan, and the United States. He touches on earlier periods but focuses on the 1980s and early 1990s, providing a fascinating review of such major events affecting monetary policy as the Plaza Accord of 1985, the stock market crash of October 1987, German unification in 1990, the stall of the Japanese economy in the 1990s, and the European exchange rate crises of 1992-93. Henning is interested in the dynamics of policymaking, especially the role of interested private parties such as banks and industrial firms and the influence of the institutional arrangements on exchange rate policy. There are important differences in these regards among the three countries, such as the subordination of the Bank of Japan to the Ministry of Finance (in sharp contrast to the Bundesbank and the Federal Reserve) and the greater influence on policy and receptivity to the interests of industrialists in Germany and Japan than in the United States.

The author makes some bold recommendations, such as that the Bank of Japan should be independent of the MOF on the (doubtful) grounds that it would encourage more active use of fiscal policy for macroeconomic stabilization; and that the Federal Reserve Act should be amended to make clear that the Fed can intervene in foreign exchange markets on its own account. However, to draw firm conclusions about political dynamics and desirable institutional structure from the study of only three important but highly complex societies is not possible.