The yen is the money of account for Japan, comparable to the dollar for the United States. By the 1990s the Japanese yen had become a major international currency, sharing the stage with the U.S. dollar, the German mark, and the ECU as determinants of international monetary values.
The Shinka Jorei (New Currency Regulations) of 1871 established the yen as the monetary unit in Japan. The Japanese derived the word yen from the Chinese word yuan, which meant “round thing,” a reference to the U.S. and Mexican dollars that dominated East Asian trade at the time. The act set the yen equal to 0.05 ounces of gold, making the official Japanese price of an ounce of gold equal to 20 yen. At the time the official United States price of an ounce of gold was $20.67. The yen was intended to be equivalent to the Mexican dollar, the standard unit in Asian trade at the time. The yen began life as a decimalized currency; one-one-hundredth of a yen was called a sen, and one-tenth of a sen was called a rin.
Officially, Japan was on a bimetallic monetary system, but in practice the yen was on a silver standard. In 1877 a civil rebellion forced the government to issue inconvertible paper money to finance military expenditures. Inflation erupted and in 1882 the government established the Bank of Japan, partly to replace inconvertible paper money with bank notes convertible into silver. Following the Sino-Japanese war of 1894–1895, Japanese received in gold a large war reparation payment from China, providing a gold reserve sufficient for Japan to establish a gold standard. In 1887 a new currency law gave the Bank of Japan a monopoly on the privilege to issue bank notes, and put the yen on the gold standard.
At the beginning of World War I most developed countries, including Japan, abandoned the gold standard and prohibited the export of gold. Following World War I Japan, beset by economic turmoil, stumbled in its efforts to return to the gold standard. In 1930, on the eve of the Great Depression, Japan returned to the gold standard, only to have to abandon it again in 1931. The depression dealt a serious blow to the gold standard worldwide, and Japan turned to tight government regulation of its currency, which continued through World War II.
A wave of inflation engulfed Japan following World War II and the occupation authorities instituted a currency reform that withdrew old yen notes and issued new yen notes. In 1949 the exchange rate between the yen and the dollar was set at 360 yen per dollar. Under the Bretton Woods system, exchange rates were fixed at official rates, and the ratio of yen to dollars remained at 360 until 1971. Large trade surpluses enabled Japan to bolster its gold and foreign exchange reserves, paving the way for lifting all restrictions on foreign exchange transactions.

When a system of floating international exchange rates displaced the fixed-rate Bretton Woods system in 1973, the yen began an upward career of currency appreciation. In 1970 it had taken 360 yen to purchase a dollar. By 1973 it took only 272 yen, and by the end of the decade it took only 219 yen to purchase a dollar. As the yen grew stronger, it took more dollars to purchase a yen, but despite that Japanese goods constituted a major competitive threat to U.S. industries. In 1984 the world’s major trading partners agreed to intervene collectively in foreign exchange markets to appreciate the yen even further. Whereas it took 239 yen to purchase a dollar in 1985, by 1988 that number had fallen to 128 yen, a substantial increase in the value of the yen.
In the 1980s Japan took further steps to deregulate its financial system and to allow foreign firms to participate in Japan’s financial markets. Japanese banks had become among the largest and most powerful in the world, and the yen emerged as a major international currency. By 1998 economic depression in Japan put downward pressure on the yen, and the yen traded at around 140 yen per dollar.

See also:

Davies, Glyn. 1994. A History of Money.
Ohkawa, Kazushi, Miyorhei Shinohara and Larry Meissner, eds. 1979. Patterns of Japanese Economic Development: A Quantitative Appraisal. 

Yeltsin’s Monetary Reform in Russia

Russia opened the 1990s in monetary chaos, manifested by soaring inflation, and a currency, the ruble, that had long been shielded from the free-market forces of foreign exchange markets. In foreign exchange markets, currencies are bought and sold with other currencies, as when Japanese yen are purchased with United States dollars.
Under economic reforms, prices, unfettered from state controls, took off, creating a ruble shortage that left some workers unpaid for months. Wages and pensions rose, and the Russian government cranked up the printing presses on a round-the-clock basis. For the month of July 1992 alone, the government printed up more rubles than the Soviet Union government had printed up in its last 30 years. To expedite the process, the government increased the largest denomination of the printed ruble from the 200-ruble note to the 1,000-ruble note. Coins also became available in higher denominations. Inflation reached its peak in 1992 when monthly inflation rates ran 15 percent, and prices increased 200 percent over the year.
In 1993 the government begin to step on the monetary brakes, but in ways that threw the country into deeper confusion. In July the government invalidated all rubles issued before 1993, and gave people only a few days to convert the old rubles into new rubles. It also put a limit on the number of old rubles that foreigners could convert into new rubles. Citizens could convert up to 35,000 old rubles into new rubles, and if they held additional rubles, these had to be put into savings accounts for six months. By the end of 1997 annual inflation had fallen to the 12 percent range, and the government announced a plan to lop off three zeros from the ruble. Effective 1 January 1998, in what was essentially an accounting reform, 1,000 rubles became 1 ruble, and all prices, balance sheets, debts, etc., were adjusted accordingly.
One legacy of the Soviet regime was tight control over the conversion of rubles into foreign currencies. Tourists were able to convert foreign currencies into rubles at a rate close to a black market rate, but set by the Russian Central Bank. Foreign-owned enterprises earning profits in rubles faced a special difficulty. If a foreign-owned company wanted to send profits home to the parent company, those profits had first to be converted from rubles to the home-country currency at a disadvantageous exchange rate set by the Russian government. To attract foreign investment, and integrate the Russian economy into the world economy, Russia had to make the ruble convertible into foreign currencies at free-market rates.

A loan from the International Monetary Fund helped the Russian government marshal the foreign exchange reserves needed to establish a convertible ruble. On 1 July 1992 the Russian government established a single exchange rate between the dollar and the ruble at an initial rate of 126.5 rubles per dollar. The responsibility for adjusting the rate fell to the Russian Central Bank, which planned to set a rate based upon twice-weekly currency auctions. After July 1993 the Russian Central Bank pegged the ruble to the dollar in a crawling peg system that avoided wild fluctuations but allowed the ruble to depreciate over time relative to the dollar. In 1996 Russia further broadened the ruble market by allowing foreigners to buy and sell Russian government bonds in secondary markets. Russian government bonds, paying over 100 percent interest at times, constitute a major demand for rubles. Rubles must be purchased first before bonds can be purchased. The astronomical interest rates on Russian bonds were sometimes necessary to maintain a demand for Russian rubles. Despite high Russian interest rates, the ruble steadily declined relative to the dollar, falling to a rate of 6,200 rubles per dollar at the end of 1997. After three zeros were lopped off, the rate became 6.2 rubles per dollar.
In 1998 the Russian government again turned to the printing press to solve Russia’s problems, putting pressure on the ruble in foreign exchange markets. The value of the ruble fell sharply in august, and to help cope with the crisis the government imposed a moratorium on payments on foreign debt, significantly adding to the severity of a global financial crisis. By the end of the year the ruble was trading at around 20 rubles per dollar.

See also:

Hanke, Steve H. 1998. Is the Ruble Next. Forbes (9 March): 64–65.
Wall Street Journal. 1991. “Soviet Printing of Rubles Soared in 11-Month Period.” 24 December, eastern edition, at A8.
1992. “Russia, Facing Inflation, Plans Bigger Banknotes.” 31 January, eastern edition, at A10.
1992. “Russia Plans to Make Ruble Fully Convertible by August 1.” 6 May, eastern edition, at A3
1993. “Chaos in Russia Mounts.” 26 July, eastern edition, at A8.
1997. “Russia’s Overhaul of Ruble Prompts Unease in Nation.” 31 December, eastern edition, at A7.