m'r 
 
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ALBERT R. MANN 
 LIBRARY 
 
 New York State Colleges 
 
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 Agriculture and Home Economics 
 
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HGl277.f2"'""'""'™«"V Library 
 
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 The original of tliis book is in 
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Series XXI No. 5 
 
 JOHNS HOPKINS UNIVERSITY STUDIES 
 
 IN 
 
 Historical and Political Science 
 
 (Edited 1883-1901 by H. B. Adams) 
 
 J. M. VINCENT 
 
 J. H. HOLLANDER W. W. WILLOUGHBY 
 
 Editors 
 
 THE HISTORY OF JAPANESE 
 
 PAPER CURRENCY 
 
 -(1868-1890) 
 
 BY 
 
 MASAYOSHI TAKAKI, S. B. 
 
 ^ BALTIMORE 
 
 THE JOHNS HOPKINS PRESS 
 
 PUBLISHED MONTHLY 
 
 MAY, 1903 
 
JOHNS Hopkins university studies 
 Historical and Political Science. 
 
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THE HISTORY OF JAPANESE 
 PAPER CURRENCY 
 
 ( I 868-1 890) 
 
Series XXI No. 5 
 
 JOHNS HOPKINS UNIVERSITY STUDIES 
 
 IN 
 
 Historical and Political Science 
 
 (Edited 1882-1901 by H. B. Adams) 
 
 J. M. VINCENT 
 J. H. HOLLANDER W. W. WILLOUGHBY 
 
 Editors 
 
 THE HISTORY OF JAPANESE 
 PAPER CURRENCY 
 
 (1 868- 1 890) 
 
 BY 
 
 MASAYOSHI TAKAKI, S. B. 
 
 BALTIMORE 
 THE JOHNS HOPKINS PRESS 
 
 PUBLISHED MONTHLY 
 
 MAY, 1903 
 
CONTENTS 
 
 PAGE 
 
 Introduction 7 
 
 CHAPTER I.— Genesis of Japanese Paper Currency. 
 
 Political condition of the country reviewed 9 
 
 Financial condition of the government before the issue of paper 
 
 currency 10 . 
 
 Measures of the government 10 
 
 Confiscation of the Tokugawa Domains 11 
 
 Contraction of a domestic loan 12 
 
 Plan of paper currency proposed 13 
 
 Mr. Mioka on the subject of the issue . . ' 14 
 
 Difficulties to be encountered 15 
 
 Legislation of May, 1868 15 
 
 Objects of the paper issue 16 
 
 To defray the government expenditure 17 
 
 To lay a sure basis of national prosperity 18 
 
 CHAPTER II.— Circulation of the Paper CuRRENcy, 
 
 Difficulties of circulation 19 
 
 Opposition of Daimyos and Satnrais 19 
 
 Policy of the government 20 
 
 Postponement of the emission 21 
 
 Enforcement by law 21 
 
 Popular refusal to accept paper currency 21 
 
 Lack of confidence 22 
 
 Existence of " clan-notes " 22 
 
 Indefiniteness of the law 22 
 
 Measures taken by the government 24 
 
 Way opened for the circulation by legislative measures 26 
 
 Appearance of counterfeit currency 26 
 
6 Contents. [314 
 
 CHAPTER III.— Kinds of Paper Currency. 
 
 PAGE 
 
 Clan-notes 28 
 
 Government notes 32 
 
 Civic department notes 33 
 
 Treasury convertible certificates 34 
 
 Colonial convertible certificates 38 
 
 New paper money 39 
 
 Improved new paper money 44 
 
 CHAPTER IV.— Redemption of Paper Currency. 
 
 Notes issued to cover temporary deficit and reissued shortly after 
 
 issue 45 
 
 Notes issued to defray the public expenditure and added to the 
 
 permanent public debt 46 
 
 Policy of redemption 47 
 
 Issue of bonds in .exchange for paper money 47 
 
 Establishment of a national bank 52 
 
 Establishment of the Bank of Japan 54 
 
 Result of the government policy 58 
 
 Bibliography 60 
 
THE HISTORY OF JAPANESE PAPER 
 CURRENCY.' 
 
 Introduction 
 
 According to historical records, the first paper money of 
 Japan was issued as early as 1335 (Kembun Period) ; but 
 particulars of the issue and characteristics of the notes are 
 entirely unknown to us. It is generally believed, however, 
 that this paper was not used in any considerable amounts." 
 Even the Tokugawa government, during its long reg^ime, 
 never put into circulation a government issue. Only at the 
 close of its power, in 1867, did it sanction a paper money for 
 the newly opened port of Hyogo; but this was withdrawn 
 as soon as authorized. Hence, the paper currency issued by 
 the government for the purpose of universal circulation 
 throughout the Empire, began with the restoration in 1868.' 
 Grovernmental currency being thus a new institution and 
 its establishment occurring in the midst of internal political 
 confusion, there were indescribable difficulties in the way of 
 carrying through this financial measure. But notwithstand- 
 ing these difficulties, the financiers and statesmen of the time 
 
 ' It has not been possible for Mr. Takaki to revise his manuscript 
 or to correct the proof of his study. The monograph is accordingly 
 printed in the form in which it was presented to, and accepted by 
 the Board of University Studies of the Johns Hopkins University 
 for the degree of Doctor of Philosophy, in June, 1895. — Editors. 
 
 'Transactions of the Asiatic Society of Japan, vol. xx, supple- 
 ment, part I, p. 168. 
 
 ' Issues of paper money by private persons were, of course, made 
 in the shape of bank notes, but they had a circulation mainly in the 
 large centres of trade. Since the period of Kwambun (1661-1673), 
 there existed another paper money issued by the Daimyos, but it 
 circulated only within the feudal territorial limits. See Count Mat- 
 sukata's Report of 1890. 
 
8 Introduction. [316 
 
 by their integrity and honesty were able to establish a solid 
 basis for the currency system and to complete the liquidation 
 of all the inconvertible paper notes before two decades had 
 elapsed. To-day Japan, so far as her financial system is con- 
 cerned, stands among the most advanced nations of the 
 world.' It is the purpose of this monograph to trace the 
 genesis, development and management of the Japanese paper 
 currency, from the restoration of the imperial power in 1868 
 down to the establishment of constitutional government in 
 1890. 
 
 ' See the address of Mr. K. Watanabe, the Japanese Minister of 
 State for Finance, at the second session of the Imperial Diet. 
 
CHAPTER I 
 
 Genesis of Japanese Paper Cuerency 
 
 Before tracing the development of the paper currency 
 system of Japan, in order that one may thoroughly under- 
 stand the forces which compelled the government to issue 
 the paper money, it is necessary to consider briefly, the con- 
 dition of the country at the time when the Imperial power 
 was restored and the present government was organized. 
 
 In the 1 2th month of Kieo (1868) the Imperial proclama- 
 tion was made that His Majesty, the Japanese Emperor, dis- 
 missed Yoshinobu Tokugawa, at the request of the latter, 
 from the office of Shogun.' Thus, the Shogun ostensibly 
 returned the ruling power which had been exercised by his 
 family for more than two hundred and fifty years, to the 
 hands of the Emperor who now became the sole ruler of the 
 country. But this surrender of the Shogun was merely 
 nominal, for although the sovereign power was formally 
 transferred, the actual power over dominion and subjects 
 remained in the hands of the feudal nobles who still con- 
 tinued to exercise governmental powers within their own 
 territorial limits. As it was impossible, however, for the 
 Emperor to " fulfil his high office " unless he possessed 
 dominion and subjects, he sent an envoy to the Ex-Shogun 
 and asked him to return such part of his revenue as had been 
 allotted to him only as Shogun.' This proposition was re- 
 fused by Yoshinobu who, however, signified his readiness 
 to hand over to the Emperor a yearly income of a thousand 
 kokus ' and to continue the former allowance of one hundred 
 
 'Translation of the proclamation is given in American Executive 
 Document, Diplomatic Correspondence, 1868-1869, p. 623. 
 " Mei-Ji-Shi-Yo, vol. i., p. 15. 
 ' One koku was about $5.00 in value. 
 
10 The History of Japanese Paper Currency. [318 
 
 and fifty thousand kokus to the Imperial Court. " He fur- 
 ther declared that he himself was ready to submit to the 
 orders of the Emperor, but the Daimyos, Aidz and Kuwana, 
 resisted his wishes ; lest there should be some violence com- 
 mitted by them, he would go to Osaka, dismiss them into 
 their respective provinces and then return to Kyoto to await 
 there the direction of the Imperial Court."' But a few 
 days after this, when the envoy was sent to invite him to 
 return to Kyoto as promised, the surprising intelligence came 
 that Aidz and Kuwana, forming the van guard of Yoshino- 
 bu's army, had marched towards Kyoto, and that this ad- 
 vance section had attacked the Imperial guard at Toba and 
 Fushimi. The rebels were repulsed and retreated to Osaka 
 and thence to the northeastern provinces by sea. This 
 treacherous conduct of the Ex-Shogun caused the Emperor 
 to declare war against Tokugawa and his adherents, and 
 to appoint Prince Arisugawa as the commander-in-chief 
 of the suppressing forces. Thus, the civil war which revo- 
 lutionized Japan was begun. 
 
 In this din of war and political confusion, the new gov- 
 ernment began its administration. It was a critical period 
 for the nation. Old institutions were up-rooted; but new 
 institutions were not yet fully established to take the place 
 of the old. The Imperial forces had gained a victory in 
 the single battle of Toba and Fushimi, yet almost all the 
 Daimyos stationed east of the Hakone Mountains supported 
 the Ex-Shogun, and resisted the Imperial army. The atti- 
 tude of the Daimyos, who were in a state of alienation and 
 insubordination, was yet a matter of uncertainty. Men's 
 minds were unsettled and public business was in a state of 
 confusion. " The great work of restoring the ancient con- 
 stitution," says Mr. Okubo in his famous memorial, " is only 
 half accomplished ; nay it may be said that it has only com- ' 
 menced." ' And although every step of the reform under- 
 
 ' American Executive Diplomatic Correspondence, 1868- 1869, p. 
 662. ' Mr. Okubo's Memorial, dated Jan. 25, 1868. 
 
219] Genesis of Japanese Paper Currency. 11 
 
 taken and every measure adopted demanded constant outlay 
 by the government, yet no means were available whereby 
 this enormous expenditure might be met. How far the 
 financial embarrassment of the government extended can be 
 seen from the letter of the Treasury Bureau to the com- 
 mander-in-chief of the Imperial army, who asked for a 
 further supply of provisions. It says : " Although we 
 acknowledge that the military funds are, at this crisis of 
 the nation, of the most pressing need, yet, as has been said 
 before, the Treasury Bureau is at present an empty bureau ; 
 ... we have not means sufificient to meet even the ordinary 
 expenses of the Bureau . . ." " Mr. Mioka (now Viscount 
 Yuri) describing the financial condition of the government 
 at that time says : " A large army was in the field engaged 
 in suppressing the rebellion but the government had no sup- 
 plies to send them; every road brought in wounded officers 
 and dying soldiers, but no means to take care of them ex- 
 isted; messenger after messenger from the military head- 
 quarters came with urgent pleas for re-enforcements, but 
 the government had to send them back discouraged. The 
 embarrassment of the government was beyond description." '^ 
 
 Examining the statistics of government expenditure, we 
 find that the extraordinary disbursement for that year alone 
 reached the enormous figure of 25,000,000 yen, while the 
 whole of the government revenue from ordinary sources 
 amounted to no more than 3,600,000 yen." 
 
 The question which demanded immediate solution was 
 " How should the government meet this enormous expendi- 
 ture with an empty Treasury ? " Many plans were sug- 
 gested, but most of them were theoretical and not appUcable 
 to the situation. As the first step towards the solution of 
 the problem, the government issued an Imperial decree three 
 days after the declaration of the war, that "all the Toku- 
 
 '" Mei-Ji-Sei-Shi, vol. i, p. 109. 
 
 "Quoted in Mei-Ji-Sei-Shi, vol. i., p. 114 
 
 " General Review of Financial Policy during Thirteen Years, p. 9. 
 
13 The History of Japanese Paper Currency. [330 
 
 gawa domains should hereafter be under the direct control 
 of the Imperial power."" This was theoretically a great 
 advance towards acquiring the sovereign power of govern- 
 ment, but it did not afford any pecuniary aid towards the 
 formation of a new government, since it was practically im- 
 possible for the administration to confiscate all the domains 
 without putting itself in danger of creating riots at a time 
 when the empire was in an unsettled condition. Even had 
 it been possible to collect all arrears, the whole would not 
 have sufficed to meet even ordinary expenses. As has been 
 said before, the territorial nobility still continued to exercise 
 the power of government, making it impossible for the 
 government to obtain from them more than an annual con- 
 tribution of about 700,000 yen for military purposes. The 
 government was obliged therefore to take another step, 
 namely to contract a domestic loan. On May 5, 1868, the 
 Emperor issued a decree stating : " The government has to 
 spend much and receives little for its Treasury ... At a 
 time of national crisis, it is the duty of the subjects of the 
 Emperor to serve the country according to their ability and 
 occupation; those who have boldness and courage, by join- 
 ing the Imperial army; those who have means, by contrib- 
 uting to the military fund. Thus each and every one can 
 have opportunity of fulfilling the duty which has been 
 assigned to him." " Again in the official letter of the Treas- 
 ury Bureau to Mr. Matsukata (now Count), the Governor 
 of Hida Prefecture, it is stated that " the government has 
 been suffering from financial difficulties and can not meet 
 the pressing need of the Imperial army in the field. We 
 sincerely wish, therefore, that your good office, bearing this 
 embarrassment in mind, would exercise its best effort in 
 raising a loan immediately in your Prefecture." " 
 
 But this measure was intended to afford only temporary • 
 relief, in meeting an urgent emergency. Owing to the lack 
 
 " Mei-Ji-Sei-Shi, vol. i, p. 109. " Mei-Ji-Sei-Shi, vol. i, p. 119. 
 " Mei-Ji-Sei-Shi, vol. i, p. 109. 
 
221] Genesis of Japanese Paper Currency. 13 
 
 of confidence in the new government, together with the fact 
 that the Tokugawa government had employed a similar 
 measure before, the people were indifferent towards the 
 loan. In the unsettled condition of affairs, many rich mer- 
 chants hid their wealth and tried to escape from the sub- 
 scription. Although this action seems to have been un- 
 patriotic and even disloyal to the country, yet considering 
 the condition of the time, it was not at all surprising. Count 
 Okuma, in his " Reminiscence," gives an instance illustrat- 
 ing how hard it was for the officials to raise money for 
 government use. He says, " When the government wanted 
 to pay for an American vessel, the ' Stonewall,' which had 
 been purchased by the Old Regime, I was appointed as the 
 government commissioner for the settlement of the matter. 
 But as there was no money in the treasury for this pur- 
 pose, I went to Osaka and even with the aid of violent 
 threats on the part of the local authority, I could raise only 
 250,00(H yen." " This was the effect of the measure in the 
 wealthy city of Osaka. We can judge of the difficulty of 
 raising the remainder of the desired loan in other cities and 
 provinces. There was an instance in which the government 
 was forced to borrow 100,000 yen for ten days at one and 
 half per cent interest. Thus the amount raised in every 
 possible way was insufficient to meet the constantly increas- 
 ing outlay. " The loans obtained," says Count Okuma, 
 " together with the money handed over by the Shogunate 
 and the fines or gifts of the Daitnyos amounted barely to 
 5,380,000 yen, or a total, from ordinary and extraordinary 
 sources, of about 9,040,000 yen." " Since the expenditures 
 reached 25,000,000 yen, there was left a deficit of 15,900,000 
 yen. The financial difficulty of the government had reached 
 its climax, and the government proceeded to adopt more 
 permanent measures for the salvation of the country from 
 financial peril, namely to resort to the issue of a paper 
 currency. 
 
 " Count Okuma's " Reminiscence," No. 123 (as published in the 
 Ho-Chi-Shim-Bun. ) 
 " Count Okuma's " Review," p. 9- 
 
14 The History of Japanese Paper Currency. [333 
 
 As has been stated in the foregoing pages, the financial 
 condition of the government had become so critical that the 
 effect of further delay would have been serious. At this 
 time the plan of issuing paper money was proposed as a 
 means of saving the government from its financial peril. 
 The originator of the scheme was Mr. Hachiro Mioka," 
 a retainer of Yechizen and a councillor of state. He was 
 known as an able financier and had won the confidence of 
 such older statesmen as Messrs. Kido and Okubo. The 
 plan was similar to the " Land Bank " system of England 
 and the " Paper Bank " system of Rhode Island. It was in 
 brief to issue paper notes, 48,973,000 yen upon the cultivated 
 land of the Empire for security, to be circulated for thirteen 
 years. 
 
 In regard to the issue, Mr. Mioka said, " For some time 
 I had had a strong conviction that if we would issue a paper 
 money to be circulated throughout the Empire, thus expand- 
 ing the medium of exchange, we could lay a sure basis for 
 the commercial and industrial prosperity of the country. . . . 
 For, although prior to the issue of paper money in my 
 province (Yechizen), we suffered from poverty and hard 
 times, yet from the time the new medium of exchange (paper 
 notes) was put into circulation, industry and trade had 
 sprung up and the provinces which hitherto had no coin, 
 had now become a wealthy country with 350,000 rio in coin. 
 Having this in view, I sought to bring my belief into reali- 
 zation and explained my plan to all the statesmen of the 
 time. But owing partly to the seemingly radical character 
 of the scheme, and partly to the ignorance of most public 
 men in respect to the matter, there was much opposition to 
 the plan which I thought to be the only means of saving the 
 country. As it was impossible to settle the question at once, 
 the government called an assembly of councillors of state to 
 consider the question. Thus all, together with the members 
 of the Imperial Household, came before the thorne on 
 
 ' Now Viscount Yuri, a member of the House of Peers. 
 
223] Genesis of Japanese Paper Currency. 15 
 
 January 29, 1868. The method of proceedings (this being 
 before the western parliamentary rules were known to us) 
 was very strange ; each member present was to speak on 
 the question in turn. When my turn came, I proposed and 
 discussed at some length the necessity and benefit of the 
 issue of a paper money. My statements created great ex- 
 citement among those assembled, and an excited discussion 
 of the problem, pro and con, ensued. The final result of 
 the debate was the order that my proposition be accepted, 
 and I was authorized to make preparation for the issue of 
 paper money at once." " Thus, in the intercarlary month 
 (from the twenty-second of May to the nineteenth of June), 
 the Dai-Jo-Kwan (Central Government) issued the follow- 
 ing proclamation : 
 
 " To create a sure basis for the prosperity of the realm 
 on the occasion of the reformation of the Imperial govern- 
 ment, after mature consideration, the issue of paper money 
 has been decreed; and according to His Majesty's orders 
 this paper money shall pass current in the whole empire 
 from the present year Tatz to the next year Tatz, i. e. for 
 thirteen years, that by it the poverty which reigns every- 
 where in the country may be alleviated. The rules to be 
 observed are mentioned below: 
 
 " The day from which it shall be put into circulation shall 
 be published by the proper authorities to all people, even 
 down to the lowest class. 
 
 " As the introduction of paper money has been decreed, 
 all Daimyos shall be able to obtain loans according to their 
 incomes, so that for every ten thousand kokus they may get 
 ten thousand rios. They must submit their wishes with 
 regard to this to the proper authorities. 
 
 "With regard to the re-payment they will be obliged to 
 pay every year, for thirteen years, a tenth of the sum lent; 
 payment to be made in notes, so that at the end of the next 
 Tatz, the re-payments will have been effected. 
 
 " Mr. Mioka's address on the " Issue of the paper money," quoted 
 in Mei-Ji-Sei-Shi, vol. i, pp. 112-118. 
 
16 The History of Japanese Paper Currency. [324 
 
 "The princes shall bear in mind that according to the 
 intentions of the Emperor, through the paper money lent 
 to them, a sure basis will be created for the prosperity of 
 the country. They shall use it, therefore, to assist industry 
 as much as possible, and to benefit their provinces. The 
 government of the princes cannot be allowed to use their 
 notes for unlawful purposes. 
 
 " To the merchants of Kyoto and of Setz (Osaka) and 
 of the neighboring rural districts, who desire to contract 
 such loans, notes shall be given in accordance with the 
 amount of business they transact, after they have expressed 
 their wishes to the officers issuing the notes. 
 
 "To the inhabitants of the towns and villages of the 
 Saibansho districts '° in the whole country, and in the terri- 
 tories of the province at their demand, after their fortune 
 has been assessed, loans shall be given for the carrying on 
 of their business. With regard to the repayment, they shall 
 pay every year a convenient part of the sum with the interest. 
 
 " Everywhere, in the whole country, the same principles 
 shall be observed as with the merchants at Kyoto and Osaka. 
 
 " Such notes as are annually repaid shall be destroyed in 
 the Kaikeikyoku^ 
 
 " From the money lent this year between the first and 
 seventh month exclusive, ten per cent shall be returned at 
 the end of this year; from the money lent between the 
 seventh and twelfth month, only five per cent. 
 
 " In this manner, according to the will and decision of 
 the Emperor, a substitute shall be created for the waiting 
 coins. Nobody, therefore, ought to censure this measure. 
 As, however, the loans are contracted in notes and are to be 
 repaid in notes, no exchange (against coin) shall take 
 place." " 
 
 According to the above text, the sole object of issuing 
 
 "Judicial District. 
 ^^ Bureau for Finance. 
 
 ^ Translation is given in American Executive Documents. Diplo- 
 matic Correspondence, vol. i, 1868-1869, pp. 795-6. 
 
225] Genesis of Japanese Paper Currency. 17 
 
 the paper money appears to have been to create " a sure 
 basis for the prosperity of the country." But if this were 
 the only object, it is difficult to understand why the measure 
 was adopted just at that time, for the government knew that 
 the over-issue of the clan notes had already caused their 
 value to fall to the lowest limit, that the people would refuse 
 the circulation of paper note of any kind, and that, conse- 
 quently, it was impossible for the government to lay a sure 
 basis for the prosperity of the country by introducing a 
 medium of exchange which the people would dislike and 
 refuse to circulate. Hence there must have been some other 
 impulse in consequence of which the government was driven 
 to adopt the measure at this unfavorable time; namely, the 
 insufficiency of existing revenues to meet the expenditure 
 of the government. This is clear from the facts mentioned 
 in the foregoing pages. 
 
 We must not, however, consider that the object stated in 
 the text was a mere pretense of the government. It was 
 true that as the capital of the country was not sufficient for 
 the growing industry, it seemed desirable in some' way to 
 increase the usefulness of that capital in order to extend 
 national industry. Moreover, the familiar maxim that 
 ' when a people becomes rich, the King thereof will also 
 become rich,' still remained in the minds of the officials of 
 the Empire. Under these influences, the government sought 
 to assist the people who were not able to extend their busi- 
 ness on account of scarcity of capital. Quoting the words 
 of Mr. Mioka, the originator of the scheme, " During the 
 Keio period, the Tokugawa government following the West- 
 ern system, had issued paper notes." I thought then that 
 such notes would never benefit the country but rather hurt 
 its industries; the more paper notes issued, the poorer 
 country Japan would become, for the object of the Tokugawa 
 government in this respect was the profit of the treasury 
 only, not the benefit of the people. This is contrary to the 
 
 '"Cf., p. I, above. 
 IS 
 
18 The History of Japanese Paper Currency. [336 
 
 true end of sound currency and the principles of political 
 economy. But our object was different from this; it was 
 to aid the people who had no means of carrying on indus- 
 try."" 
 
 Soon after the proclamation was promulgated, the govern- 
 ment established the Bureau of Trade and Industry and 
 took measures for promoting industry and commerce." It 
 is also true that in accordance with the clause in the text, 
 the government loaned the notes to merchants and farmers, 
 although there is no method of knowing how much these 
 classes received. In the statistics of the " Government Rev- 
 enue " for the second fiscal term (Jan. 1869-Sept. 1869) 
 we find an item, "Repayment of Industrial Loan" which 
 amounted (for that year) to 4,496,009,000 yen. Thus, it is 
 evident that the object of the government was twofold : To 
 defray the expenses of the government and to increase the 
 national capital. "There was moreover," says Count 
 Okuma in his " Review," " a deficiency of capital in the 
 country, and as only a very short time had elapsed since the 
 Restoration, it would have been impossible for the govern- 
 ment, during the first five or six years of its existence, to 
 raise sufficient funds by way of internal loans to meet its 
 expenditures. Under these circumstances, a resort to the 
 issue of a paper currency became absolutely unavoidable." " 
 
 "Mr. Mioka's address quoted in Mei-Ji-Sei-Shi, vol. i, p. 113. 
 
 ^ Mei-Ji-Sei-Shi, vol. i, p. 121. 
 
 '"Okuma's "Review," p. 8. Afterwards five other kinds of notes 
 were issued and circulated, the genesis and characteristics of which 
 will be considered in Chapter III. 
 
CHAPTER II 
 
 Circulation of the Paper Currency 
 
 The proclamation was issued in the expectation that the 
 notes might be circulated as soon as prepared. Mr. Mioka 
 and his subordinates were busily engaged in the preparation 
 of the issue. In summing up the work and the difficulties, 
 these officials encountered, Mr. Mioka says : " Since the day 
 of my appointment to this important office, I pledged myself 
 to labor for this great project of the government as hard as 
 my strength would allow. Yet an unexpected difficulty was 
 the increase both in the number and influence of the oppo- 
 nents of the measure. They employed many assassins and 
 tried to take my life, hoping thus to check the completion 
 of the issue. I did not care so much for my life as for the 
 plans of the government, for if I fell under the dagger of 
 an assassin, the work we had undertaken might never be 
 accomplished. On the other hand, the messengers from the 
 battle field came as often as three times a day, and brought 
 urgent pleas for reinforcements. In this dangerous situa- 
 tion we were placed and we worked day and night, until 
 most of the required amount was prepared." ' 
 
 On May 9, 1869, the notification of the central govern- 
 ment was issued stating, " The paper currency which has 
 been decreed, will be circulated from May 15, 1868."" 
 When the time fixed for the issue of the paper money ap- 
 proached its opponents increased their efforts, and finally 
 compelled the government to postpone the issue. These 
 opponents were not among the traders and the merchant 
 class, but were found among the Daimyos and Samvrai 
 classes. The chief cause of this opposition appears to have 
 
 ' Mei-Ji-Sei-Shi, vol. i, p. 116. "^ Kempo-Rui-Hen, vol. ix, p. 26. 
 
20 The History of Japanese Paper Currency. [228 
 
 been the interest of these classes who were benefited by the 
 circulation of the " clan-notes " and whose interests might 
 be affected by the circulation of the new paper money. To 
 understand the situation, we again refer to the words of Mr. 
 Mioka himself. He says : " In order to begin to circulate 
 the paper money from the date fixed by the decree, we had 
 made all arrangements for this purpose. It was not an easy 
 task to make such preparation at the time when we had no 
 telegraph system and no such rapid distribution of mail as 
 we have now. When all the preparations were made and 
 it was our intention to issue the notes on the next day, to 
 our great surprise and disappointment, an order of postpone- 
 ment reached us. Indeed, this was a very vexing question, 
 for there was no way to stop the circulation because we had 
 already sent the notes out to the principal cities and towns 
 ordering the local authorities to distribute them. Even if 
 we sent out messengers to these places, they could not reach 
 the destination before the time assigned for the issue. I 
 explained this difficulty to the authorities and they did not 
 know what could be done. The question was how to stop 
 the circulation. I told them there was no way to stop the 
 circulation of the notes which were sent out. But I had one 
 plan to stop the circulation of those in our hands without 
 altering the decree and without weakening public confidence 
 in the government. That was to set the Ni-Jo-Jo (a build- 
 ing where the paper notes were stored) on fire and destroy 
 the notes ; and then I would kill myself. Thus the govern- 
 ment could announce my conduct and could postpone the 
 circulation without injuring the dignity of the administra- 
 tion." ' 
 
 Thus tlie problem of the paper currency returned to its 
 original status, by the opposition of the nobility and the 
 soldier class. But the condition of affairs was so critical 
 that Prince Iwakura said : " If no notes are issued, the 
 soldiers on the battle field will starve." The opposition of the 
 
 ' Mei-Ji-Sei-Shi, vol. i, p. 117. 
 
229] Circulation of the Paper Currency. 31 
 
 anti-paper currency party was in the end unsuccessful and 
 the government ordered Mr. Mioka to go on with his work 
 and proceeded to enforce the law. Yet its opponents offered 
 such stubborn resistance that in one instance General Saigo 
 was obliged to go to Shimonoseki with an army in order 
 to enforce the measure.* Only through difficulties and hind- 
 rances was the first paper money issued on May 25, 1868. 
 
 Now that we have considered how the first paper money 
 v^as issued and what difficulties the government had faced, 
 let us turn to the results of the issue and thereafter to the 
 measures which the government adopted for the circula- 
 tion of the notes. It is a difficult task to introduce a new 
 institution but it is equally difficult, if not more so, to put 
 the scheme into actual operation. When the plan of issuing 
 paper currency was projected, the administration met with 
 manifold difficulties owing partly to the ignorance and pre- 
 judices of some officers against the plan, and partly to the 
 indefiniteness of the government's design. But when it be- 
 came necessary to circulate the money among the people, 
 the difficulties became more serious. Every merchant and 
 tradesman refused to receive it. In fact, the money almost 
 ceased to circulate at all. The causes which led to this 
 general refusal were as follows : 
 
 First. As has been stated before, this being the first 
 paper money ever issued by the central government, espe- 
 cially a newly organized government, the people regarded 
 the measure with little confidence and with suspicion as to 
 its credibility. This distrust of the government on the part 
 of the people was the principal cause of the failure in 
 circulation. 
 
 Second. At that time, the monetary system of the clan 
 governments was grossly corrupt, and the central authority 
 being busied with the improvement of its own administra- 
 tive organs and with the efforts to suppress the rebellion in 
 the North, was not able to effect reform. These clan-gov- 
 
 * Mei-Ji-Sei-Shi, vol. i, p. 117. 
 
23 The History of Japanese Paper Currency. [230 
 
 ernments changed their paper currencies frequently, destroy- 
 ing old and issuing new notes, whenever the change was 
 beneficial to the treasury, without regard to the suffering 
 and loss of the people. Through this arbitrary financial 
 management, whenever such alteration took place, the people 
 suffered great loss. Naturally they looked upon the central 
 government's notes in the same light as the clan-notes, and 
 had no confidence in the newly introduced medium of ex- 
 change. 
 
 Third. In addition to these general causes, there was a 
 more specific and immediate cause, namely the indefiniteness 
 of the redemption clause of the act of 1868. The act made 
 no definite statement as to the limit of the issue and the 
 method of redemption, other than the following : " such notes 
 as are yearly repaid shall be destroyed in the Kai-Kei-Kyoku 
 (Bureau of Treasury)." ° Now, although it was stated that 
 the object of issuing the paper money was to lay the founda- 
 tion of national prosperity, yet the people knew that the 
 real object was to make up the deficit of the public expendi- 
 ture. It was clear that the money lent to the people might 
 be redeemed at the end of thirteen years. But the people 
 questioned how the government would manage the paper 
 money issued for its own use. 
 
 These causes, together with other minor matters, brought 
 the value of the paper money down to a minimum. The 
 depreciation began literally with its issue. Merchants in 
 cities refused to receive it at its face value, and the people 
 in rural districts refused to take it at all. In consequence 
 even in the three business centres of the country, Tokyo, 
 Osaka and Kyoto, it was used only at sixty per cent dis- 
 count.' In the provincial districts it did not circulate at all. 
 
 How the government faced such diflftculties and overcame 
 them is our next consideration. One of two measures the 
 government was obliged to adopt ; either to abandon the plan 
 altogether or to enforce the act with power. No middle 
 
 ' Cf., p. IS, above. " Mei-Ji-Sei-Shi, vol. i, p. 203. 
 
231] Circulation of the Paper Currency. 33 
 
 course was left. It was impossible to adopt the first course, 
 on account of the critical condition of public finance, as has 
 been repeatedly intimated. Hence resort was had to the 
 second course. In order to remove the existing difficulties 
 and prejudices, the government took various measures, now 
 appealing to the patriotic sentiment of the people, again 
 seeking to secure co-operation by words of threat and per- 
 suasion. But these failed in creating sufficient confidence 
 in the minds of the people to cause them to accept the paper 
 money as the government desired, and the value of the 
 money continued to fall. The depreciation occasioned the 
 formation of an " exchange-commission House," where the 
 paper currency was exchanged for specie at a certain dis- 
 count. This institution intensified popular dislike of the 
 paper notes. 
 
 The government then resorted to more vigorous action, 
 prohibiting " any person or persons from fixing any ratio 
 of exchange of paper for specie " and ordering that " the 
 violation of the law should be liable to punishment." ' This 
 measure, however, did not prevent the depreciation of the 
 paper notes, but rather increased the people's distrust of 
 the action of the government. The next step to open a 
 way for the distrusted currency, was to create a demand 
 for the paper money. This was done in the form of a 
 proclamation that " all taxes shall be payable in the paper 
 money concurrently with coin, in so far as is practicable." ' 
 A certain demand for the notes was created and their value 
 rose somewhat, yet they circulated at twenty per cent dis- 
 count. The second compulsory act was then adopted, pro- 
 viding that " any one who should refuse to circulate the 
 paper money should be regarded as one who resists and 
 denies the Imperial Order." But notwithstanding the en- 
 actment of this measure, the people refused to receive the 
 paper money, and there were many who were charged with 
 violation of the law and imprisoned. 
 
 ' Kempo-Rui-Hen, vol. ix, p. 26. 
 ' Kempo-Rui-Hen, vol. ix, p. 26. 
 
24 The History of Japanese Paper Currency. [232 
 
 Thus, although the government exercised its power in 
 various ways to secure the circulation of the government 
 notes, the natural course of events could not be prevented, 
 and the people's dislike for the paper notes became greater 
 and the fall in value of paper money continued. This com- 
 pelled the government to adopt an altogether different policy 
 from what it had taken before. The former decree which 
 had prohibited the fixing of a ratio between specie and paper 
 was repealed and a new decree which permitted the use of 
 the paper money according to its market value was now 
 promulgated. With the announcement of this law, those 
 who were imprisoned as the violators of the former decree 
 were released. But this new act permitted different values 
 in different parts of the country and there was no way to 
 estimate accurately the income of the government. There- 
 fore, the government issued a further decree which pro- 
 vided that " all the taxes and dues should be paid in the 
 paper money as well as specie in the ratio of one hundred 
 and tweny rio and one hundred rio; that the government 
 would pay its outlay with the paper currency estimated at 
 the average value of ten days in a month." ° As soon as 
 this decree was issued, the value of the paper money began 
 to fluctuate so greatly that the government, before the meas- 
 ure was put into operation, was forced to amend the decree 
 and to change the last clause, so as to read that " all govern- 
 ment outlay and salaries would be paid in paper money in 
 the ratio to specie stated, namely, one hundred and twenty 
 of paper to one hundred of coin." " The people still, how- 
 ever, continued refusing to receive the money; all kinds of 
 business fell into a state of stagnation; some of the 
 wealthiest merchants closed their doors and many smaller 
 houses were dragged down by their fall; the distrust took 
 hold of the public mind and commercial credit was greatly 
 injured. 
 
 In 1869, the government determined to bring the paper 
 currency up to par, and in April of that year rescinded the 
 
 ° Mei-Ji-Sei-Shi, vol. i, pp. 205-206. '° Mei-Ji-Sei-Shi, vol. i, p. 206. 
 
233] Circulation of the Paper Currency. 25 
 
 last decree and enacted that no difference between coin and 
 paper money should be established, announcing furthermore 
 that not only the violators of this law should be punished 
 but also the head of the province of which the transgressor 
 was a resident. The government also prohibited any ex- 
 change of paper money for coin except in cases where the 
 exchange was an absolute necessity. 
 
 But the natural course of events could not be stopped and 
 the tendency of the public will could not be checked merely 
 by laws and edicts, if not rightly applied. Thus, when the 
 government tried to raise the value of the paper money by 
 prohibiting the establishment of any market discount, the 
 value thereof fell; when it was ordered that the notes be 
 circulated throughout the empire, they returned to the cities ; 
 again, when the paper money was ordered for use in daily 
 transaction, it lost the quality which would make it the 
 standard of value and consequently of adjustment of prices. 
 Hence, in June, 1869, the government was forced to issue 
 the decree making the paper currency redeemable in thirteen 
 years, announcing that either it would be redeemed in coin 
 by the end of 1882, or if that were not done, interest at the 
 rate of six per cent would be allowed upon the whole amount 
 in circulation."^ It also announced its intention of abandon- 
 ing the issue of large quantities of paper money which had 
 been contemplated and of destroying the machinery that 
 had been erected for that purpose, and further that any one 
 found offering a discount upon paper money would be fined. 
 The thirteen years during which the notes were to remain 
 outstanding were shortened to five years " and the maximum 
 amount was limited to the existing sum, 32,500,000 rio. 
 Through these measures fixing the maximum amount and 
 the term of redemption, a stable ratio of exchange of paper 
 currency was established; but the dislike to its use still 
 prevailed among the people of provincial districts. Conse- 
 quently, all paper money returned to the cities and specie left 
 
 " Count Okuma's Review. 
 
 "Count Matsukata's Report of 1890, p. 315. 
 
26 The History of Japanese Paper Currency. [334 
 
 cities for the rural places, a scarcity of metallic money in 
 cities resulted, general prices rose and the people in the 
 cities fell into still greater distress. The government vainly 
 attempted to level prices in the cities and provincial dis- 
 tricts by distributing paper money according to the amount 
 of the products of the farming people, and also by distribut- 
 ing coins which gathered in the country places among the 
 city people." These plans being unsuccessful, the govern- 
 ment was forced to withdraw the paper money thus dis- 
 tributed. 
 
 In June, 1870, when the Rebellion was suppressed and the 
 people began to know the policy of the government, the 
 decree was issued that the prefectures should form an alli- 
 ance to circulate the paper money. This was carried on very 
 successfully and from this time on the way to the circulation 
 of the paper money was gradually opened, until within a few 
 months it circulated at par with specie. 
 
 Although these legislative measures may have had some- 
 thing to do with bringing the value of the currency to that 
 point, yet there were two important causes by which the 
 success was attained, namely, first, the increased confidence 
 of the people in the government; second, the desperate con- 
 dition of the currency system of the old regime. 
 
 1. The depreciation of the paper money was not caused 
 by over-issue, but by the lack of confidence of the people in 
 the government. Hence, when the civil war was over, when 
 the social order was restored, and the people understood 
 the plan and policy of the government, the confidence was 
 increased and the notes began to circulate. Notwithstand- 
 ing the fact that the issue of notes was greatly increased, 
 yet the value rose not only to par with specie but specie was 
 exchanged for paper at a discount." 
 
 2. At the close of the Tokugawa regime, when the gov- 
 ernment was in distress for lack of funds, good coins were 
 melted and recoined into an inferior money with alloys. 
 
 " Kem-Po-Rui-Hen, vol. ix, p. 38. 
 
 " Count Matsukata's Financial Report of 1890, p. 22. 
 
235] Circulation of the Paper Currency. 37 
 
 Thus the amount of currency was increased and its real 
 value decreased. Moreover, when the central power of the 
 Tokugawa government became weak, each separate feudal 
 local government practiced this same process of recoinage. 
 In this way, when the Restoration was established and the 
 new government was formed, the currency system was 
 grievously and excessively corrupted; all good coin was 
 either stored in the treasuries of wealthy men and withdrawn 
 from circulation, or exported to foreign countries, while 
 the coin in circulation was debased money which had lost 
 the quality permitting it to be a standard of value. The 
 consequence was that coin of the same denomination came 
 to have many different values according to the quantity of 
 gold it contained. 
 
 In addition to these debased coins, there were so-called 
 " clan-notes." " Soon after the Restoration, as well as 
 before, the clans needed funds to accomplish certain internal 
 reforms of clan government and over-issued the notes until 
 they had -no value. Although these notes were circulated 
 only within each clan, yet the issue was universally adopted, 
 and over-issue affected the trade of the whole country. 
 Thus, the people suffered from various difficulties; in in- 
 ternal trade within a clan, they suffered from over-issue of 
 the paper currency and, in external trade without the clan, 
 from the circulation of the debased money. Thus the cry 
 for a uniform correct system of currency came from all parts 
 of the Empire. Just at. that time, the Imperial government 
 announced that the government notes would be exchanged 
 for the good coin and a uniform monetary system would 
 be established within a few years. Moreover, the govern- 
 ment succeeded in reforming all corruptions and in assur- 
 ing the public of the fidelity of the administration. With 
 the confidence in the government, the credit of paper money 
 was increased. Thus the depreciation of the clan notes and 
 the debased coins of the old regime were turned to the bene- 
 fit of the new government notes. 
 
 " See Chap. III. 
 
CHAPTER III 
 Kinds of the Paper Currency 
 
 When the Imperial government began its administration, 
 the prevailing paper money was the so-called Hansatsu (clan 
 notes), which had been in use since the seventeenth century. 
 With the new administration, a new currency system was 
 instituted, under which there was another issue of paper 
 money. This new paper money was of six kinds, namely: 
 
 I. The Dai-Jo-Kwan-Satsu (Government Notes), 2. The 
 Mim-Bu-Sho-Satsu (Civic Department Notes), 3. 0-Kura- 
 Sho-Dakkwan-Sho-Ken (Treasury Convertible Notes), 4. 
 The Kai-Taku-Shi-Dakkwan-Sho-Ken (Colonial Depart- 
 ment Convertible Notes), 5. Shin-Shi-He (New Paper 
 Money), 6. Kai-Ryo-Shi-He (Improved Notes). These 
 various notes will be described in succession. 
 
 Han-Satsu (Clan Notes). — In the period of the Kwam- 
 Bun (1661-1673), Matsudaira Tada Masa, the Prince of 
 Fukui, having suffered financial embarrassment, after pro- 
 claiming that the Tokugawa government had not fulfilled 
 its promise to grant him additional territory, persuaded the 
 Shogun to give permission for the issue of clan notes to 
 be circulated within his territory. This was the origin of 
 clan notes, which were circulated until the abolishment of 
 Hans (clan notes) in 1872. In the Gen-Roku (1688-1704), 
 many southwestern provinces following the Fukui experi- 
 ment, and issued silver notes to a considerable extent.' 
 Thereafter the feudal nobles who suffered from financial 
 difficulties adopted this measure to relieve the provinces 
 from embarrassment. Although the Tokugawa government 
 
 'The use of paper money was introduced from China where it 
 had existed since the Dynasty of Kan. Mei-Ji-Sei-Shi, vol. i, p. 367. 
 
237] Kinds of the Paper Currency. 39 
 
 objected strongly to surrendering the exclusive right of coin- 
 age, it was compelled to grant this right to a few Daimyos. 
 Now to restore the right, "in 1707 (Hoyei IV), the govern- 
 ment prohibited the further issue of all such money, in terms 
 which seemed also to include even the continued circulation 
 of what had been already put forth. In 1730 (Kyolu XV) 
 it was found necessary to repeal this prohibition, in order 
 to bolster up the price of rice. The permission applied to 
 gold, silver and copper bills equally, and was to continue 
 in the case of Daimyos of 200,000 koku or more for twenty- 
 five years, but in the case of those of smaller estates, for fif- 
 teen years only. In 1755, the license was restricted to silver 
 bills only. Subsequent legislation merely declared the policy 
 of refusing to grant it to daimiates other than those already 
 possessing the privilege.^ At the close of the Tokugawa 
 government, many fiefs issued more paper money than the 
 law allowed and some of the Daimyos issued notes without 
 any permission at all. 
 
 These silver notes were of many denominations. In Fukui 
 (Echizen), for instance, where the earliest issue of clan 
 notes took place, the denominations were i, 2, 3, 5, 10, 50 
 and 100 momme. It would seem that none of the issues 
 were in name irredeemable, although the actual value of the 
 notes was more or less affected by the pecuniary condition 
 of the fief. Some of the more opulent Daimyos established 
 at Osaka banks for the redemption of their issues and in 
 consequence their notes had a large circulation outside their 
 own fiefs. Various artifices were employed to induce the 
 acceptance of the paper money. For instance, the Prince 
 of Bizen ordered that for 100 momme of silver coin, loi 
 momme of notes would be given, while for 102 mom.me of 
 notes, there would be given only 100 momme of silver. It 
 will easily be understood that, from the scarcity of coined 
 money under the old. regime, the Daimyos in many cases 
 
 ' Transactions of the Asiatic Society of Japan, vol. xx, supplement, 
 p. 168. 
 
30 The History of Japanese Paper Currency. [338 
 
 felt themselves compelled to increase the currency circula- 
 tion by issuing paper money. In other cases, the necessity 
 arose of defending their own fiefs from the paper money 
 of adjacent fiefs by following the example of their neigh- 
 bors, and thus preventing a drain of their own coin. But 
 there were many cases in which paper money was resorted 
 to merely as a means of escape from pecuniary embarrass- 
 ment which both the taxes and the official money-lenders 
 were powerless to relieve.' At the time of the Restoration, 
 the over-issue of the paper notes had reached its maximum 
 and, consequently, the fall in the value of the notes was 
 considerable, its exchange ratio being one-eighteenth of gold. 
 Thus, the clan notes came to be of scarcely more value than 
 waste paper. When the new government issued paper 
 money the clan notes interfered greatly with its circulation. 
 The two notes could not exist together, for as the circula- 
 tion of one was extended, that of the other was necessarily 
 contracted. When the Hans (clans) were abolished and 
 the country was redivided into prefectures, the chief object 
 of the government was the centralization of power. This 
 included, of course, the right of coinage. But the existence 
 of the clan notes was contrary to the centralization of gov- 
 ernment, for at that time there were in circulation many 
 inconvertible currencies issued by the different authorities. 
 Moreover, this was not only detrimental to the commerce 
 and industry of the country, but it affected directly the 
 finances of the government, because since the clan notes 
 were legal tender, the government was obliged to accept 
 them whenever presented for taxes, dues, etc., while the 
 clan notes could not be used throughout the country, but only 
 within certain feudal territories. 
 
 For these reasons, as early as 1870, the government di- 
 rected its attention to the clan notes. At first, the govern- 
 ment issued an order prohibiting the circulation of the notes 
 
 ° Transactions of the Asiatic Society of Japan, vol. xx, supplement, 
 p. 169. 
 
239] Kinds of the Paper Currency. 31 
 
 issued without the permission of the Shogunate, and those 
 issued after the Restoration. Secondly, all further issue 
 of notes and bills similar to the clan notes was stopped and 
 the manufacture of the paper used for the clan notes was 
 brought under direct governmental inspection. Finally, the 
 government attempted to exchange the clan notes for gov- 
 ernment notes. In the decree issued on July 14, 1871, we 
 read, "currency should be of uniform nature, yet hereto- 
 fore the different fiefs have issued various notes, and the 
 system has thus become heterogeneous, while the exchange 
 value of the notes has become extremely confusing. Now 
 that the Hans are abolished, these notes should be exchanged 
 for the government notes according to the exchange value 
 of to-day." * Later on, it was ordered that " such plates as 
 are used for printing the notes, and the unused material shall 
 be taken by the authorities and be destroyed." ' 
 
 At the close of the Tokugawa regime there were 244 
 Hans (clans), 14 Ken (Tokugawa's direct territory), 9 
 Hatamato (direct retainers of Tokugawa), whose issues of 
 paper money were extant. The notes were of various kinds, 
 and of dififerent denominations; there were 1694 different 
 kinds and the amount of circulation in the value of the coin, 
 was 24,930,000 yen. At first, the government ordered the 
 Hans to liquidate all the notes in circulation within each 
 territory, but owing to the inability of the Hans to do so, 
 the government was obliged to assume the liability for the 
 entire amount. To accomplish this the government deter- 
 mined to exchange the clan notes for the " New Paper 
 Money," ° thus unifying the currency system of the country. 
 Two difificulties presented themselves in carrying out this 
 measure: i. The heterogeneous kinds of clan notes, and the 
 existence of notes of small denominations ; 2. The absence of 
 any provision for the exchange of these notes. The govern- 
 ment was accordingly forced to postpone the exchange and 
 to permit the clan notes to continue in circulation. 
 
 * Kem-Po-Rui-Hen, vol. iv, p. 25. 
 
 ' Kem-Po-Rui-Hen, vol. iv, p. 34. See p. 39. 
 
32 The History of Japanese Paper Currency. [240 
 
 The abolishment of the Han and the establishment of pre- 
 fectures, created confusion in regard to the boundaries of 
 territory, since the old Han did not altogether correspond 
 with the new prefecture, and consequently there was also 
 confusion of the limits of the circulation of the clan notes, 
 resulting in their depreciation. To overcome this difficulty, 
 • the government fixed a ratio between the clan notes and 
 new currency on one hand and, on the other, it defined the 
 boundary lines within which each clan note should be circu- 
 lated. For example, where an old clan now came under the 
 jurisdiction of more than one political division, according 
 to the new system, the clan note could be circulated within 
 the new political division, although it might be outside of 
 the original clan jurisdiction. In order to raise the value 
 of the notes, the banks were ordered to buy in the notes 
 where they were the most depreciated, and the government, 
 at the same time, undertook to cancel all the notes. Such 
 notes as were received from the Hans, either for the reserves, 
 or for the repayment of individual loans, or for taxes or 
 dues, were destroyed. But the exchange of small notes of 
 less than 5 sen (cent) was postponed until small coin could 
 be issued. 
 
 In 1872 when the whole provision for the exchange of 
 clan notes was made, the government began to exchange all 
 the notes above five sen for the new currency (and the notes 
 below that denomination in 1874). The redemption of the 
 clan notes was completed in June, 1879. This conversion 
 of the clan notes was one of the most important measures 
 undertaken by the new government. It facilitated the free 
 exchange of commodities and developed the national econ- 
 omy, extending the circulation of the government notes, in- 
 creasing the confidence of the people in the government, and, 
 finally, unifying the currency system of the Empire. 
 
 Dai-Jo-Kwan-Satsu (Government Notes). — The Imperial 
 government issued its note in 1868 with the intention of con- 
 tinuing it in circulation for thirteen years, at the end of 
 which time the issue was to be converted into coin. Later, 
 
241] Kinds of the Paper Currency. 33 
 
 when the people began to discredit the notes and their value 
 consequently fell, the term was shortened to five years. If 
 the notes were not redeemed at that date, interest at the 
 rate of 6 per cent was to be paid upon the whole amount 
 in circulation. At the end of the fifth year, 1873, with the 
 object of contracting the circulation, " Bonds in exchange 
 for Kinsatau" (paper money) were issued, undertaking to. 
 pay 6 per cent interest on all amounts of paper currency 
 which might be offered in exchange for these bonds. But 
 as the credit of the paper currency was daily improving, 
 while there was a general need for capital for carrying on 
 business, there was very little demand for these bonds. The 
 amount and denominations of the government notes issued 
 from May, 1868, to December, 1869, were as follows : 
 
 Kinds. Amount. 
 
 Rio 10 bill Rio 23,032,000 
 
 Rio 5 bill Rio 5,969,000 
 
 Rio I bill Rio 15,485,000 
 
 Bu I bill Rio 5,161,000 
 
 Shu I bill Rio 1,050,000 
 
 Mim-Bu-Sho-Satsu (Civic Department Notes). — This 
 form of currency was issued in accordance with the ordi- 
 nance of September, 1869, by the Civic Department.^ It was 
 of small denominations, namely: two-Bu (50 sen), one-Bu 
 (25-sen), two-Shu (12.5 sen), and one-Shu (6.25 sen). 
 The full amount of the currency was not to exceed 7,500,000 
 rio. 
 
 These notes stood in the relation of subsidiary currency 
 to the government notes ; the decree describing the object of 
 the issue, stated : " Owing to the fact that the existing cur- 
 rency consists only of paper notes of large denominations, 
 the people of the remote towns and villages may suiifer from 
 inconvenience in the daily transaction of business. Hence, 
 
 'Afterwards the Civic Department was divided into the Depart- 
 ments of Finance, Interior and Justice. 
 16 
 
34 The History of Japanese Paper Currency. [343 
 
 the Bureau for Commerce will proceed to issue notes of 
 smaller denominations, and the notes of larger denomina- 
 tions which are exchanged for the smaller shall be de- 
 stroyed." ' 
 
 The question arises, in view of the fact that both this 
 currency and the government notes were issued by the same 
 central government, why one was called" Government notes" 
 and the other " Civic Department notes " ? The answer is, 
 that the government declared in May, 1868, that the "amount 
 of the notes will be limited to 3,250,000 rio, and after that 
 amount is reached, the plate used for the issue will be de- 
 stroyed . . ." The government could not change the prom- 
 ise thus made to the public, but ordered the department in 
 which the financial function of the government was exercised 
 to issue these subsidiary notes in the name of the department. 
 The total amount of notes issued of the various denomina- 
 tions was as follows : 
 
 Denominations. Amount. 
 
 Two-Bu bill 3,683,000 rio 
 
 One-Bu bill 2,407,000 rio 
 
 Two-Shu bill 1,093,000 rio 
 
 One-Shu bill 315,000 rio 
 
 The issue began in September, 1869, and was completed 
 in October, 1870; in October, 1880, with the government 
 notes, it was exchanged for the " New Paper Money." 
 
 0-Kura-Sho-Dakkwan-Sho-Ken (Treasury Convertible 
 Notes). — These notes were issued by the ordinance of Octo- 
 ber, 1871, in the name of the Mitsui Company.' The object 
 
 ' Kem-Po-Rui-Hen, vol. ix, p. 40. 
 
 ° The House of Mitsui was founded early in the 17th century in 
 Kyoto by a man of that name coming from Echigo province in the 
 West. Contradictory stories are told as to which member of the 
 family first brought it into prominence by his energy and skill. 
 Romance has colored its earlier days; but at any rate no long time 
 elapsed before prosperity began to visit the house, and after one or 
 two generations, its branches extended to all parts of the country, 
 the chief stores being six in number, one for each branch of the 
 family. The house had taken the name of " Echigo House ;" and 
 
243] Kinds of the Paper Currency. 35 
 
 of issuing these notes was twofold; primarily, to defray 
 government expenditures, and secondarily, to buy in all the 
 old coins which were floating in the country. 
 
 The year 1871 marks the abolition of the Han (clan) and 
 _the redivision of the country into prefectures; the adminis- 
 trative sphere was correspondingly extended, causing ordi- 
 nary and extraordinary expenditures to be increased to 
 57.730)000 rio. On the other hand, owing to the fall in 
 price of rice," which constituted the principal source of the 
 government revenue, the income from both ordinary and 
 extraordinary sources, did not exceed 32,610,000 yen, leav- 
 ing a deficit of 25,120,000 yen. 
 
 To make up this deficit two measures were considered: 
 (a) the issue of more inconvertible notes, and the sale of the 
 coins (Ni-bu-kin) which were deposited in the Treasury 
 from time to time. Neither of these measures seemed prac- 
 ticable; for the former would be contrary to the decree 
 announcing that no further issue would be made and the 
 latter was undesirable at a time when the government was 
 planning to establish a new coinage system. The value of 
 specie fell very low and the people disliked to. use the coin. 
 Moreover, the government was gathering iall the coin pos- 
 sible in order to prepare a basis for a future coinage, so that 
 the sale of such coin as the government already possessed 
 was not to be thought of. Hence another measure was 
 sought. This scheme was to authorize a private commercial 
 house to issue notes and to circulate them. The adoption 
 of this scheme had two advantages: (a) the government 
 could succeed in raising enough to meet the deficit; (b) a 
 large quantity of specie could be collected with comparatively 
 little expense. 
 
 It is to be noted that the Mitsui Company acted as a gov- 
 
 as early as the last decade of the 17th century its fame was such 
 that Kaempfer was attracted by the extent of its comipercial opera- 
 tions and made special mention of its achievments. Smce the Res- 
 toration, this house has acted as a financial agent of the government. 
 " In 1871, the maximum price of rice was 4.32 yen per koku and 
 the minimum price 1.81 yen. 
 
36 The History of Japanese Paper Currency. [244 
 
 ernment agent in issuing this currency." Whenever the 
 Treasury Department wanted money, the Company received 
 its order accompanied by a reserve equal to one-half of the 
 amount of notes to be issued. If exchange in specie were 
 demanded and the demand were greater than the reserve 
 received, the Company had the right to demand more of the 
 government. Accounts of all transactions were subject to 
 government inspection. In the case of destruction or loss 
 of the measure either by fire or theft, the Company was re- 
 sponsible for the loss. All expenses incurred in issuing the 
 notes were paid by the Company. For all this trouble and 
 work, the Company was permitted to receive as compensa- 
 tion twenty per cent of the total issue, for their own use 
 without reserve. 
 
 This compensation was clearly excessive. While the notes 
 were in circulation, the Company had the right of using for 
 their own benefit one-fifth of all issued. The notes being 
 convertible, the Company was obliged to have some reserve, 
 but so long as there was not much demand for redemption, 
 it could use the government reserve, if need be, since there 
 was no definite rule for the exchange for coin, nor for the 
 circulation of certificates whereby the notes in the use of the 
 government were distinguished from those of the Mitsui 
 Company. Again, the expense of issuing the certificate was 
 slight and, moreover, because of its privilege, the credit of 
 the Company became very great and its profits extraordi- 
 nary. 
 
 It was not long, however, before the government found 
 out that the compensation of the Company was too much 
 for the service rendered. In 1872, the government estab- 
 lished the system of deposit for exchanging the notes. Since 
 then, the contract with the Mitsui Company has been modi- 
 fied, and now, although it still has the use of one-fifth of 
 the total notes issued, yet the Company is obliged to ex- 
 change one-fifth of all notes presented for redemption. After 
 
 " Mei-Ji-Sei-Shi, vol. i, p. 240. 
 
24:5] Kinds of the Paper Currency. 37 
 
 five years, the Company was obliged to pay back twenty per 
 cent of all the notes issued to the Treasury Department, and 
 during that length of time the Company was required to 
 deposit twenty per cent of the sum in specie, on which the 
 government paid reasonable interest. In short, according to 
 this new contract, the compensation of the Company was the 
 privilege of borrowing money without interest for a security 
 bearing interest. 
 
 The original intention of the government was to limit the 
 amount of the notes to 3,000,000 yen ; but as its financial diffi- 
 culties were critical and the issue was intended to meet the 
 deficit in public revenues, the government issued more than 
 was originally intended. The amount of notes issued from 
 October to December, 1871, reached 4,772,000 yen, and dur- 
 ing January and February, 1872, 2,028,000 yen, making a 
 total of 6,800,000 yen. Notwithstanding the enormous in- 
 crease of the issue, their credit did not decline; for at the 
 beginning of the issue the government promised to exchange 
 notes for coins on demand and to destroy the notes re- 
 deemed. Moreover, since it was at a time when the old 
 coin was unpopular, the people preferred the use of the 
 paper money to that of specie. In issuing these convertible 
 note^, the government was certainly successful. But subse- 
 quent policies caused the notes to fall into great disfavor, 
 from the evil efltect of which the country suffered for many 
 years. 
 
 If the government had followed the plan originally stated, 
 destroying the notes exchanged, the entire issue would have 
 disappeared and the economic condition of the country would 
 have been greatly bettered. But contrary to what was ori- 
 ginally intended, when the notes redeemed reached one-fifth 
 of the total issue (October, 1871, to March, 1872), the gov- 
 ernment, instead of destroying redeemed notes, returned 
 them again to circulation. Again, when the amount of new 
 coin reached 51,990,000 yen, the government could have 
 accomplished the resumption of specie payments as origin- 
 ally intended. But instead of attempting this plan, it ex- 
 
38 The History of- Japanese Paper Currency. [?46 
 
 changed the notes for the " New Paper Money " which was 
 itself inconvertible money. Thus, the paper money which 
 was originally issued with the promise of convertibility lost 
 that quality and was added to the enormous amount of in- 
 convertible paper money already in circulation. All this 
 mismanagement was based on the belief of the officials that 
 as the notes could be circulated at par value with coin, 
 whether convertible or inconvertible, conversion into coin 
 upon demand was unnecessary. 
 
 Kai-Taku-Shi-Dakkwan-Sho-Ken Colonial Department 
 Convertible Certificate) . — This issue, as the one preceding, 
 was emitted in accordance with the ordinance of May, 1871, 
 by the Treasury Department in the name of the Mitsui" 
 Company. 
 
 The object of the issue was the promotion of the industry 
 and commerce of the Northern Island (Hokkaido). The 
 important question, how to open the " Island of the Bar- 
 barians," had been agitated from time immemorial. With 
 the Restoration and the nationalization of the Empire, the 
 need of settling this question was very keenly felt. This 
 island, as the northern gate of the Empire, required a gar- 
 rison for defense from northern invasion. Having a large 
 population relative to its area, the government required all 
 its arable land for cultivation, while experience proved that 
 the island was covered with valuable natural treasure." 
 Accordingly, soon after the new government was organ- 
 ized, tlie question of the colonization of the Hokkaido was 
 considered. It was a great undertaking, requiring large 
 funds in order to attain any success. Owing to its financial 
 embarrassment, the government could not appropriate any 
 additional revenues for this purpose. In 1872, Gen. Kuroda, 
 the head of the Colonial Department, with the consent of 
 the Treasury Department, -proposed to issue convertible cer- 
 tificates amounting to 2,500,000 yen, and the. proposition was 
 accepted by the Council of State. 
 
 "Rein, Industries of Japan, p. 324. 
 
247] Kinds of the Paper Currency. 39 
 
 The issue of these notes was similar to that of the Treas- 
 ury notes, but with certain modifications. As the Colonial 
 Department required the notes, they were issued by the Mit- 
 sui Company upon order of the Treasury Department, 
 against a reserve equal to one-third of the amount issued. 
 The time of circulation was to be ten years, during which 
 term the Colonial Department was to prepare for redemp- 
 tion. If no steps were taken for this purpose, the Treasury 
 Department was authorized to withhold such amount from 
 the annual appropriation of the Colonial Department. All 
 the expenses of issuing the certificates were to be borne by 
 the Colonial Department. Both Treasury and Colonial cer- 
 tificates were, however, poorly manufactured, and were 
 easily counterfeited. Hence the government decided to 
 stop their circulation after May, 1877, and they were ex- 
 changed foi- the " New Paper Money." 
 
 Shin-Shi-Hei (New Paper Money). — The object of issu- 
 ing this paper money was twofold; to prevent the circula- 
 tion of counterfeit money and to unify the currency system. 
 In 1870, when the paper money had begun to win the con- 
 fidence of the people and the solid basis of the currency 
 system was almost laid, the country was greatly alarmed 
 by the appearance of numerous counterfeit bills of various 
 kinds. This spurious money was emitted not only by na- 
 tives, but also by Chinese counterfeiters. There had been 
 many forgeries committed while the " clan governments " 
 were still in power, but that was in a time of great confusion, 
 when the centralization of power was not fully consummated, 
 and the government could not take any strict measure against 
 the offense. But now when the central government was fully 
 recognized by the people throughout the country, the author- 
 ities determined to put an end to counterfeiting and all the 
 evils connected therewith. Accordingly the government 
 issued private instructions addressed to local authorities 
 throughout the Empire as follows : " Notwithstanding the 
 fact that the government had already made the announce- 
 ment that it would convert paper money into specie, we are 
 
40 The History of Japanese Paper Currency. [248 
 
 surprised at the appearance of counterfeit bills. This for- 
 gery is a great evil which endangers the prosperity of the 
 nation. Therefore, careful investigation should be made and 
 those persons who have committed the forgery should be 
 judged according to the law. Search for the spurious 
 money, examine it with care, and if proved to be counter- 
 feit, destroy it and report to the Civic Department concern- 
 ing the matter. Manage the affair privately, for if the 
 public know this fact, the people may refuse to receive paper 
 notes, thus preventing again the circulation of any kind of 
 paper currency."" 
 
 Soon after these instructions were issued, knowledge 
 thereof became public. So the central government coun- 
 selled the public to be on the watch for spurious money, 
 and established examining offices at Tokyo, Osaka, Kobe 
 and Yokahama, and afterwards at the seat of each pre- 
 fectural government, in order to prevent the continued 
 circulation of the counterfeit notes. Many piersons were 
 sentenced for participation in the forgery. The Chi- 
 kuzen province was punished severely. Kuroda, the chiji," 
 head of the provincial government, was dismissed from 
 office owing to some of his clan having been implicated in 
 counterfeiting the paper money to a considerable extent in 
 their province; five were condemned to death and four to 
 ten years' penal servitude." 
 
 The period of counterfeiting which at one time placed the 
 country in a very dangerous position, but which was sup- 
 pressed within a short time, directed the attention of the 
 authorities to the fact that this was due to two defects 
 
 " Mei-Ji-Sei-Shi, vol. i, p. 320. 
 
 " The head of the local authority. 
 
 " F. O. Adams, History of Japan, vol. i, p. 2SS- Concerning for- 
 eign criminals, the government_ discovered that four subjects of the 
 Chinese Empire, named _ Go-Kitsu-ho, So-sho-ho, Li-Shi-Kong and 
 Chon-yie-Kyoku, were implicated in the forgery. The Chief of 
 Police, Ghin-fuku-kun, was notified and directed to punish them and 
 to destroy the thirty plates of counterfeit money, and the head of the 
 provincial government was requested to take some measure for pre- 
 vention of future forgery. 
 
249] Kinds of the Paper Currency. 41 
 
 in the existing paper money, namely, its imperfect manu- 
 facture rendering it easy to counterfeit, and the poor 
 material of which it was made rendering it non-durable. 
 These facts caused the government to consider a change in 
 the existing paper money and the issue of a perfect currency, 
 thus preventing any successful forgery in the future. Just 
 at that time, a German establishment, Dondorf by name, lo- 
 cated in Frankfort-on-the-Main, advised the government 
 through Herr von Blank, German Minister to Japan, that 
 the lithographed paper money issued by their establishment 
 would never be forged, and that if a first order were placed 
 with them, they would teach the art to Japanese artists. 
 The Japanese government accepted the offer, and a contract 
 for paper notes amounting to 5,000,000 yen was completed 
 in October, 1871, and artists were sent in January to learn 
 the art of lithography." 
 
 A few months later the authorities found that in conse- 
 quence of the strict measures adopted for the prevention of 
 counterfeiting, the credit of the government notes was re- 
 stored and the number of spurious notes was greatly dimin- 
 ished. Accordingly the officers in charge of the financial 
 affairs of the government considered it unnecessary to re- 
 deem all the old notes immediately, but proceeded at once 
 to call in the clan notes. This proposition was accepted by 
 the Councillors of State, and the proclamation of December, 
 1871, was issued : 
 
 " Owing to the poor manufacture of paper money, there 
 are many who have lawlessly attempted to counterfeit the 
 government notes, and there are also gold, silver and copper 
 bills in present circulation, which have been issued by divers 
 clans. These elements create much inconvenience, as well 
 as positive loss in the transaction of business. Therefore, 
 although the government has been burdened with enormous 
 outlay yearly, it has issued new paper money of excellent 
 quality of the following denominations: 100 yen, 50 yen. 
 
 " History of Japanese Currency, vol. xv, p. 35. 
 
42 The History of Japanese Paper Currency. [350 
 
 20 yen, 10 yen, 5 yen, 2 yen, i yen, 50 sen, 20 sen, 10 sen, 
 and 5 sen. Of these, i yen, 50 sen, 20 sen, and 10 sen 
 will be issued and circulated from February 15, 1872. As 
 soon as issued, all the old government notes and clan notes 
 will be taken in exchange for them."" 
 
 In 1872, when the Han (clan) was changed into the 
 Prefecture, the government determined to exchange all dan 
 notes and placed a second order for 50,000,000 yen. After- 
 wards, the original lithographic plate was transferred from 
 Germany to Japan and the reserve notes were issued at the 
 " Paper Currency Bureau " to the amount of 3,537,000 yen. 
 
 After these two original objects were accomplished, the 
 government sought to exchange all government notes and 
 certificates. The various purposes for which these so-called 
 " New German paper notes " were issued, are summarized 
 in the following table : 
 
 Purpose of Issue. Amount. 
 
 Conversion of old notes 52,897,000 yen 
 
 Conversion of clan notes 22,618,000 " 
 
 To defray colonial expenses 1,100,000 " 
 
 Conversion of Treasury certificates 6,784,000 " 
 
 Conversion of Colonial certificates 2,463,000 " 
 
 To cover deficit 8,525,000 "' 
 
 To cover expenses of suppressing Rebellion 
 
 of 1877 • 27,000,000 " 
 
 121,387,000 yen 
 
 The first purpose of issue, conversion of old government 
 notes, was to exchange Treasury and Colonial Department 
 certificates for the new paper money." It was argued that . 
 the issue of 100,000,000 yen had been ordered, although the 
 total sum of government," civic" and clan notes to be ex- 
 changed was not more than 85,000,000 yen ; that there ex- 
 isted, therefore, an excess of 15,000 yen; that if this excess 
 were devoted to the redemption of other outstanding notes 
 amounting to 9,300,000 yen. Treasury notes of 6,800,000 
 yen and Colonial certificates of 2,500,000 yen, there would 
 
 " Kem-Po-Rui-Hen, vol. ix, p. 25. 
 
 " See p. 52. " See p. 42, above. " See p. 45, above. 
 
251] Kinds of the Paper Currency. 43 
 
 then be no need of expending specie for their redemption. 
 Inconvertible certificates were thus exchanged for converti- 
 ble notes. 
 
 The use of paper money by the government was favored 
 by the fact that the certificates when issued were received 
 by the people very favorably and circulated extensively, 
 very few notes being presented for redemption. Moreover, 
 as notes of the smaller denominations circulated among the 
 mountaineers and fishermen, the wear and tear was great 
 and it seemed impossible that the amount which was origin- 
 ally intended for circulation would last ten years. In any 
 event, as the island was gradually opened and the wilder- 
 ness became a taxable area, it seemed no difficult task to 
 redeem the notes with the coin paid in as taxes in the island. 
 Hence, holding the sum of 1,800,000 yen, which was lent 
 to the people of Hokkaido, as a reserve, the government 
 issued additional notes to the amount of 1,100,000 yen. 
 
 In the year 1871, when the country was redivided, the 
 public expenditure became very great, and the government 
 suffered from financial embarrassment. Whenever a deficit 
 occurred, the Bureau of Ways and Means would borrow 
 temporarily from the Bureau of Currency to meet the defi- 
 ciency, with the intention of repaying the amount when 
 taxes were received. Now this seems very similar to the 
 treasury certificate system. But, in the, first case, there was 
 a definite term within which the debt would be paid, usually 
 not longer than a fiscal year, whereas the system adopted 
 by the Japanese government provided no definite term for 
 liquidation. The Minister of State for Finance simply be- 
 came a debtor of the Bureau of Currency, and a creditor 
 of the Bureau for Revenue; the liability of debtor and the 
 right of creditor rested upon one person, and there was no 
 specific obligation to pay at all. This mode of transaction 
 was resorted to nine times during the five months from 
 October, 1872, to February, 1873, and the amount thus bor- 
 rowed was 8,000,000 yen. In 1874, this debt was converted 
 into the " new paper notes." 
 
44 The History of Japanese Paper Currency. [353 
 
 At the beginning of the new era of the Meiji, the govern- 
 ment adopted the policy of interference in commerce and 
 industry. It went so far in this direction that it was said 
 that the government monopolized all the industries of the 
 country. This policy cost the government soo,cxx) yen, 
 which necessitated another issue of paper money. 
 
 In 1877, when the country had entered upon its prosperous 
 career, the development of national life was suddenly checked 
 by a civil war, which left the country in a serious condi- 
 tion. To meet the enormous expenditure incident to the 
 war, the government having no other source from which it 
 could draw, circulated paper notes to the value of 27,000,000 
 yen from the reserve currency which was to be used for 
 exchanging "worn-out paper notes." In the same year 
 it was decreed that this reserve currency should circulate 
 for fifteen years, and at the end of that period be exchanged 
 for bonds. 
 
 Kai-Ryo-Shi-Hei (Improved Paper Money). — The new 
 paper money which was claimed to be perfect in manufacture 
 was found, a few years after it was circulated, to be imper- 
 fect in three particulars: (i) As the notes of all denomi- 
 nations were of the same size, differing only in the figure 
 which indicated the denomination, it was very difficult to 
 distinguish one denomination from the other. (2) Owing to 
 the character of the paper, the color used in the lithographic 
 print was not absorbed sufficiently to prevent it from being 
 changed very easily. (3) Owing to the poor texture of the 
 paper, the notes were easily torn and were soon worn out. 
 It is reported that 100,000 yen worth of notes were brought 
 to be exchanged in one month. 
 
 For these reasons, the government ordered the Financial 
 Department to issue another note known as the " Improved 
 Paper Money," which should remedy these defective quali- 
 ties in the " New Paper Money." 
 
CHAPTER IV 
 Redemption of Paper Currency 
 
 Although all the notes described in the preceding chap- 
 ters are included under the name of " Government Notes," 
 yet in regard to their characteristics and their objects, the 
 various issues may be divided into the two following classes : 
 
 A. Those issued for meeting a temporary deficit, because of 
 the excess of expenditures over the revenues of the govern- 
 ment ; but forming no addition to the permanent debt of the 
 government. 
 
 B. Those issued for defraying the government expendi- 
 ture and destined to become a permanent debt of the gov- 
 ernment. 
 
 It is not unusual in financial administration for the expen- 
 diture and revenue to be unequal ; sometimes the former is 
 greater than the latter ; while at other times the reverse is the 
 case. " Temporary deficits and surpluses cannot be avoided. 
 In the management of a large financial organization complete 
 equalization of receipts and expenditure could hardly ever 
 be obtained, or, if it were, would be due to chance." ' Hence 
 governments usually provide some method of borrowing 
 which may be utilized in case of temporary inequality be- 
 tween expenditure and revenue. The Japanese government 
 having no central banks, adopted the system of "reserve 
 paper notes," considering that "this method is better than 
 issuing a loan, for by it, the government is free from paying 
 interest and free also from the trouble of collecting the 
 loans." But in 1877 and the four years following, a succes- 
 sion of events necessitated a large amount of extraordinary 
 expenditure and the government was forced to issue an ex- 
 
 * C. F. Bastable's Public Finance, p. 535. 
 
46 The History of Japanese Paper Currency. [254 
 
 cessive quantity of notes. Consequently, at the end of 1881, 
 the depreciation of the paper notes was so great that the 
 government was compelled to undertake their reform.' 
 
 This important work was left to the ministry of Count 
 Matsukata. Soon after entering upon his office, the Count 
 found that the " reserve notes " in circulation amounted to 
 10,430,000 yen.' He took measures for the redemption of 
 the " reserve notes," and in order to accompUsh his plan 
 carried out the following reforms : 
 
 1. In the first place, he remodelled the method of receiving 
 revenue and of defraying expenditure. Hitherto it had been 
 the custom to keep the taxes paid by the people in the treas- 
 ury of the local authorities for some months before trans- 
 mitting to the central government. On the other hand, 
 financial regulations required the Financial Department to 
 pay in advance one-twelfth of the appropriation for the dif- 
 ferent departments of the central government, and one- fourth 
 of that for the provincial government.* Thus some reserve 
 was rendered necessary. 
 
 Count Matsukata changed the system so that the surplus 
 of one province could be used to cancel the deficit of another. 
 He ordered all the local governments to report to the Finan- 
 cial Department every other day, by telegraph, the amount 
 of money in their local treasuries. Thus he was enabled 
 to use a surplus existing in one part of the Empire to bal- 
 ance a deficit in another. 
 
 2. Count Matsukata endeavored also to replace the "re- 
 serve notes " with specie. The larger part of the reserve 
 was in the form of loans and government bonds, and only 
 the sum of 8,000,000 yen was held in specie to effect the 
 conversion of the bills. Hence he resolved to augment the 
 amount of specie. To accomplish this, he sold the bonds 
 and arranged for the payment of all loans so that the reserve 
 consisted entirely of specie. When the government should 
 
 'Report of the Minister of Finance, p. 73. 
 ' Count Matsukata's Report of 1890, p. 75. 
 * Ministers' Report, p. 10. 
 
255] Redemption of Paper Currency. 47 
 
 have a deficit, the coin reserve was to be used instead of the 
 old paper notes. 
 
 3. The third measure taken was the diversion of the specie 
 paid in for building the Middle Provincial Railroad to the 
 temporary needs of the government. In 1883, it was deter- 
 mined to lay a railroad joining the two capitals, Tokyo and 
 Kyoto, through the Middle Provinces. Bonds were offered 
 for sale in the same year and a large amount of specie was 
 thus brought into the central treasury. The government 
 was able to use this sum for tiding over the temporary 
 emergency until the carrying out of the project demanded 
 the money. Through these measures, all the notes of Class A 
 were converted into specie in 1883.° 
 
 For the reasons mentioned in the preceding chapters, the 
 amount of inconvertible notes, in new paper money, reached 
 in 1878 the following enormous figures : 
 
 Amount issued for the conversion of old 
 
 government notes and bills 61,367,000 yen 
 
 Amount issued for the conversion of clan 
 
 notes 22,908,000 " 
 
 Amount issued for meeting general defi- 
 ciency 8,525,000 " 
 
 Amount used for the expenses of the Insur- 
 rection 27,000,000 " 
 
 Total 119,800,000 ° 
 
 We shall now consider how the government managed this 
 enormous amount of inconvertible notes. In 1873, when it 
 was decreed that the old notes should be exchanged for the 
 new coins and that if all were not so exchanged, six per cent 
 interest should be paid on those continuing in circulation, 
 the government attempted the fulfilment of these promises 
 and took several measures for the redemption of the paper 
 notes.' 
 
 The first of these was the issue of the " Bond in exchange 
 for Paper Money," and the second, the establishment of 
 
 " Count Matsukata's Report of 1890, p. 78. 
 
 * See Compendium of the Japanese Finance, vol. ii, p. 240. 
 
 ' Cf., p. 30. 
 
48 The History of Japanese Paper Currency. [256 
 
 national banks with the right to issue convertible certificates. 
 According to these regulations, national banks were estab- 
 lished, each of which should have a capital of at least 
 50,000 yen. Six-tenths of the capital was to be deposited in 
 paper money at the Financial Department and the remaining 
 four-tenths was to be held in specie as a reserve for the 
 redemption of the bank's notes. Then the Financial Depart- 
 ment issued " Bonds in exchange for the Notes," bearing 
 interest at the rate of six per cent per annum payable in 
 gold, which the banks were required to retain as security for 
 the note issue. The amount of the notes could not exceed 
 the security possessed by the bank. Concerning the advan- 
 tages of issuing the " Bonds in exchange for Paper Notes," 
 Count Okuma says, " This plan has two advantages ; in the 
 first place, when the rate of interest falls below six per cent 
 in gold, owing to an excess of paper money in circulation, 
 the holder will be at liberty to exchange them for public 
 bonds, while the government would be enabled to with- 
 draw enough paper money to maintain the circulation at an 
 amount suitable to the requirements of the country ; and in 
 the second place, when the paper currency falls below par, 
 the holder will be able to obtain bonds, the interest of which 
 will be payable in specie." ° 
 
 These were really the first steps taken by the government 
 towards the redemption of the paper currency, but the press- 
 ing necessity for the conversion of " clan notes " and the 
 outbreak of the Kiushu Insurrection compelled the govern- 
 ment to issue additional notes to the amount of something* 
 over 31,000,000 yen and thus abandon the plans for re- 
 demption. 
 
 During the five years from 1874 to 1879 the government 
 notes in circulation increased to a considerable amount. In 
 the early part of the period, as there was only a limited 
 issue of the notes, they circulated at par with specie,' but, 
 
 'Okuma's Review, p. 14. 
 
 ' Of course, silver being the only money used in Japan's foreign 
 trade, there were fluctuations in the value of silver according to the 
 shifting relation of imports to exports. 
 
^^'^J Redemption of Paper Currency. 49 
 
 later, owing to the inconvertible character of the notes and to 
 their over-issue after 1877, they began to fall in value. For a 
 time the result disturbed the internal as well as the foreign 
 trade. 
 
 The first effect of the depreciation was the excess of im- 
 ports over exports, and the second was the outflow of the 
 monetary metals. Both of these results are shown in the 
 following tables : " 
 
 TABIiB I. 
 
 EXPORTS AND IMPOKTS OF COMMODITIES. 
 
 Tear 
 
 Imports 
 
 Exports 
 
 Excess of 
 Imports 
 
 Excess of 
 Exports 
 
 
 yen 
 
 yen 
 
 yen 
 
 yen 
 
 1872 . . . 
 
 26,174,000 
 
 7,026,000 
 
 9,148,000 
 
 
 1873... 
 
 28,107,009 
 
 21,635,000 
 
 6,471,000 
 
 
 1874... 
 
 23,461,000 
 
 19,317,000 
 
 4,144,000 
 
 
 1875 . . . 
 
 29,975,000 
 
 18,611,000 
 
 11,364,000 
 
 
 1876" .. 
 
 23,964,000 
 
 27,711,000 
 
 
 3,746,000 
 
 1877... 
 
 27,420,000 
 
 23,348,000 
 Table II. 
 
 4,072,000 
 
 
 
 IMPORTS AND EXPORTS OF PRECIOUS METAL. 
 
 Tear 
 
 Imports 
 
 Exports 
 
 Excess of 
 Imports 
 
 Excess of 
 Exports 
 
 
 
 yen 
 
 yen 
 
 yen 
 
 1872... 
 
 3,691,000 
 
 4,480,000 
 
 
 789,000 
 
 1873... 
 
 3,080,000 
 
 5,122,000 
 
 
 2,042,000 
 
 1874... 
 
 1,071,000 
 
 13,995,000 
 
 
 12,923,000 
 
 1875... 
 
 298,000 
 
 14,663,000 
 
 
 14,365,000 
 
 1876... 
 
 8,267,000 
 
 10,675,000 
 
 
 2,408,000 
 
 1877... 
 
 2,173,000 
 
 9,441,000 
 
 
 7.267.000 
 
 Notwithstanding these clear evidences of the effects which 
 we have ascribed to the over-issue of the paper notes, 
 most of the financiers of the time attributed this alarming 
 inequaUty between imports and exports to the scarcity of 
 capital and sought a remedy in the issue of more bank notes. 
 With this end in view revision was made of the Bank Regu- 
 lation by which more inconvertible bank notes were issued. 
 The government required the banks to deposit in the Finan- 
 cial Department government bonds bearing four per cent 
 interest to the amount of eight-tenths of its capital, leaving 
 
 "Count Matsuka's Report of i8go, p. 85. 
 
 " The excess of imports in the year 1876 was due to the failure 
 of the silk crop in the European countries, and the consequent in- 
 creased exports of silk from Japan. 
 17 
 
50 The History of Japanese Paper Currency. [358 
 
 only two-tenths of the capital in specie. Upon the basis of 
 this specie the bank was allowed to issue notes to "the 
 amount of the deposited bonds. This measure indicates that 
 the government had at that time abandoned entirely its first 
 idea of redeeming the inconvertible notes, by allowing the 
 exchange of bank notes for government notes, which were 
 themselves inconvertible. Thus, during three or four years, 
 there were added to the amount of inconvertible paper money 
 already in existence over ioo,ooo,(X)0 yen." 
 
 An incidental factor in the adoption of this measure was 
 the commutation at this time of the hereditary pension of 
 the military classes into " Public Debt Bonds." " This class 
 beyond the functions which had appertained to it under the 
 regime that had passed away, was ignorant of the ordinary 
 means of gaining a livelihood, and now being suddenly 
 relieved from those functions, was in great danger of falling 
 into a state of indigence and perhaps into pauperism, unless 
 some calling could be found for its members. The govern- 
 ment consequently sought a means by which the military 
 class could turn their " Public Debt Bonds " to account in 
 obtaining a livelihood." " These circumstances, the demand 
 for more capital, and the relief of the military class led 
 the government to revise the Bank Regulations and to issue 
 the additional inconvertible notes. 
 
 The results of this measure were felt in the finances of the 
 country soon after the revision took place in 1878. There 
 ensued further depreciation of the paper money, an excess 
 of imports over exports, an efflux of silver and gold, and 
 a rise of general prices. These phenomena are shown in 
 the following tables : 
 
 Table 1. 
 
 AMOUNT OF PAPBE NOTES IN CIKCULATION 
 
 Tear Class A Class B Bani: Notes Total 
 
 yen yen yen yen 
 
 IS'"' U,961,000 93,836,000 13,352,000 119,149,000 
 
 18™ 19,618,000 119,800,000 36,279,000 165,697,000 
 
 IS'S 16,118.000 114,190,000 34,046,000 164,354,000 
 
 1880 16,528,000 108,412,000 34,426,000 159,366,000 
 
 1881 13.000,000 105,905,000 34.396,000 153,302.000 
 
 ^ See the Compendium of the Japanese Finance. 
 " Count Okuma's " Review," p. 29. 
 
^^^] Redemption of Paper Currency. 51 
 
 TABLE II. 
 
 DEPRECIATION OF THE PAPER NOTES IN COMPARISON WITH SIL- 
 VER. (PRIOR TO SEPTEMBER, 1879, IN THE MEXICAN DOL- 
 LAR COIN AND THEREAFTER IN JAPANESE TEN COIN). 
 
 ^'" YM vtn 'i:^' •""• *"' •'°''» •'""' ■'°B- Sept. Oct. Nov. Dm. Aver. 
 
 Jg^ J'0J3 1,037 1,026 1.034 1,015 1,024 1,034 1,052 1,053 1,043 1,037 1,030 1,( 
 
 1879. _^ 
 
 ^^ 1-365 1,389 1,435 1,549 1,373 1,867 1,378 1,'387 1,489 mi l.'eSB \7^ V477 
 
 .1,049 1,075 1,105 1,076 1,066 1,068 1,0«8 1,078 1,110 1,143 1,131 1,217 1,0»» 
 
 ^™ 1-217 1,246 1,261 1,247 1,161 1,102 1,121 1,172 1,158 1,233 1,286 1,336 1212 
 
 1,365 1,389 1,435 1,549 1,373 1,867 1,378 1,387 1,489 1,651 1,686 1,659 1- 
 
 1^1 l-'28 1,746 1,774 1,795 1,620 1,625 1,628 1,629 1,690 1,734 1,692 1695 II 
 
 TABLE III. 
 
 IMPORTS AND EXPORTS. 
 
 ^®*' Imports Exports Excess of Imports 
 
 yen yen yen 
 
 18" 27,420,000 23,348,000 4,072,000 
 
 18™ 32,874,000 25,988,000 6,886,000 
 
 18'?8 32,953,000 28,175,000 4,777,000 
 
 1880 36,626,000 28,395,000 8,231,000 
 
 1881 31,191,000 31,058,000 132,000 
 
 Table IV. 
 
 EXPORTS AND IMPORTS OF THE PRECIOUS METALS. 
 
 ^®*'' Imports Exports Excess of Exports 
 
 yen yen yen 
 
 18'"' 2,173,000 9,441,000 7,267,000 
 
 18'i'8 2,189,000 8,328,000 6,139,000 
 
 18'i'9 3,134,000 12.778,000 9,644,000 
 
 1880 3,638,000 13,222,000 9,584,000 
 
 1881 1,856,000 7,490,000 6,634,000 
 
 Table V. 
 
 PRICE OF RICE " 
 
 Tear Maximum 
 
 yen 
 
 1877 5,67 
 
 1878 7,03 
 
 1879 9,37 
 
 1880 12,11 
 
 1881 11,53 
 
 As shown by the above tables, depreciation of the paper 
 money caused by the over-issue began in 1877. At the be- 
 ginning of the year 1874, silver money brought 7 or 8 sen 
 
 " The price of rice is selected because of its universal use through- 
 out the country; the price given is that per koku in the Tokyo 
 market. 
 
 Minimum 
 
 Average 
 
 yen 
 
 yen 
 
 4,63 
 
 5,15 
 
 5,37 
 
 6,20 
 
 7,05 
 
 8,21 
 
 8,15 
 
 10,13 
 
 9,44 
 
 10,48 
 
52 The History of Japanese Paper Currency. [360 
 
 premium, and at the end of the year the paper depreciated 
 and the difference between paper and silver was 22 sen. 
 This phenomenon called the attention of the financiers to 
 the importance and necessity of some action. They failed, 
 however, to see the real cause of the premium. They thought 
 the depreciation of the paper due to the appreciation of 
 silver ; that the appreciation of the metal was caused by the 
 unfavorable balance in the foreign trade, and that this, in 
 turn, was owing to scarcity of capital which hindered indus- 
 trial enterprises. Hence, the measures adopted by the gov- 
 ernment were not intended to contract the inconvertible 
 notes but rather to prevent the appreciation of silver money. 
 
 In 1879 the premium on silver went up as high as 25 
 per cent. In order to stop the appreciation of silver, the 
 government authorized two banks at Tokyo, Mitsui and 
 Second National Banks, to sell silver to the amount of 
 2,400,000 yen from the Reserve fund."_ This measure caused 
 silver to depreciate slightly; it had been at 16 sen premium, 
 but now fell to 12 sen. When the sale stopped silver went 
 up again to 23 sen, then to 33 sen, and in 1880 it rose as 
 high as 54 sen premium. In that year, the government or- 
 dered three banks (First, Second and Mitsui) to sell silver 
 to the amount of about 6,000,000 yen. 
 
 Silver, as a result, fell down to 37 sen premium, but in 
 the autumn of the same year it went up to 48 sen. Having 
 thus failed in all its attempts to prevent the appreciation of 
 silver, the government abandoned the plan of selling silver 
 and determined to accomplish its purpose by the more direct 
 method of contracting the paper currency. 
 
 Two measures looking to this end were immediately 
 adopted: i. An increase in the tax on liquor. 2. A reduc- 
 tion in the outlay of the government. By the first measure 
 the Financial Department was able to add 6,000,000 yen 
 and by the second 3,500,000 to the reserve which was in- 
 tended for the redemption of the paper currency. 
 
 " Mei-Ji-Sei-Shi, vol. ii, p. 234. 
 
261] Redemption of Paper Currency. 53 
 
 But the appreciation of silver did not stop and in 1881 
 silver was at 79 sen premium, the maximum limit of the 
 appreciation. The effect of the premium upon industry and 
 commerce was alarming. The revenue of the government 
 decreased to one-half its nominal value ; many of those whose 
 livelihood depended upon salaries and pensions were reduced 
 to want. The rate of interest rose and the government bonds 
 fell in value. All commodities rose in price, and the efifect 
 of the high price of rice was especially severe upon the 
 common people, as it is the chief product and the staple 
 food of the Japanese people. The farmers alone are sup- 
 posed to have been benefited by the appreciation of silver. 
 " In the year 1881," says Hon. T. R. Jennigan, the United 
 States consul at Osaka, " nearly every thing in Japan had 
 greatly risen in price, and as the great majority of the 
 people considered only price and not value, and ignored the 
 wholly fictitious nature of the advance, it is not surprising 
 that they imagined it both solid and likely to endure, and 
 thought themselves very prosperous and quite justified in 
 launching into much extravagant expenditure. Accord- 
 ingly, new farm houses sprang up in every province; new 
 clothes and ornaments were freely purchased, landed prop- 
 erty came in great demand . . . and in general everybody 
 rejoiced in hope and a sense of prosperity." " 
 
 Before long, the government awoke to the danger and 
 renewed its efforts to diminish the note circulation. This 
 important matter was left to the ministry of Count Matsu- 
 kata. 
 
 In October, 1881, Count Matsukata was appointed Minis- 
 ter of State for Finance and immediately undertook to con- 
 tract the currency. The first step he took was to segregate 
 as large a specie reserve as possible. With this in view, 
 Count Matsukata ascertained how much specie the govern- 
 ment could devote to the purpose. In his report on the 
 result of this investigation, he says, " We have an average 
 
 " U. S. Consular Reports, vol. xix. No. 68, p. 655. 
 
54 The History of Japanese Paper Currency. [263 
 
 annual surplus of revenue amounting to 7,000,000 yen, and 
 a reserve already made, amounting to 36,438,000 yen, mak- 
 ing a total 43,438,000 yen which we can use for the manage- 
 ment of the paper currency." " If," he continues, " we 
 manage our annual income and reserve properly, before 
 many years pass we can accomplish the redemption of all 
 inconvertible notes."" From this time on, the government 
 on the one hand contracted the paper notes and on the other, 
 increased the reserve, with the intention, ultimately, of 
 changing the irredeemable paper notes into convertible cer- 
 tificates. To accomplish this aim, the government, on the 
 advice of Count Matsukata, on October 10, 1882, established 
 the " Central Bank of Japan." 
 
 The object of the establishment of the Bank of Japan is 
 described in the memoir of Count Matsukata. He says, 
 " The existing banks (260 in number, including all branch 
 offices) scattered over the country have no business connec- 
 tion with each other; and the feudal barrier still separates 
 one bank from another. Consequently, specie to the value 
 of 50,000 yen cannot be utiHzed, and thus there is no way 
 for extending the credit of the banks. Hence, although the 
 amount of bank notes issued reaches the enormous sum of 
 over 34,000,000 yen, yet the country has been feeling the 
 insufficiency of the medium of exchange. 
 
 " If this were the age of feudalism such an institution 
 might have been of some service to society. But, fortunately, 
 that age has passed and gone. By this time the central gov- 
 ernment has been formed and all the provincial governments 
 have been established, bearing a definite relation to the cen- 
 tral government. But sad to say, the banking system, which 
 is the most important factor of the financial welfare of the 
 country, is not in accord with the centralization of the 
 government. 
 
 "Accordingly, in order to save the country from an un- 
 balanced situation in its political and financial system, there 
 
 " Count Matsukata's Report of 1890, p. 123. 
 
263] Redemption of Paper Currency. 55 
 
 is left but one measure, that is, the establishment of the 
 ' Central Bank of Japan.' The circulation of the currency 
 is like the circulation of the blood, and what keeps up the 
 circulation is the heart. The central bank is the heart of 
 the currency circulation of a country, without which the 
 finances of the country cannot be successfully adminis- 
 tered." " 
 
 This memoir was accepted unanimously by the members 
 of the Cabinet, and the " Regulation of the Bank of Japan " 
 was proclaimed June 27, 1882. The " Regulation " may be 
 summed up as follows : 
 
 1. The object of the Bank shall be: (a) To make the 
 flow of currency in circulation easy and undisturbed, (b) 
 To render service to the government as a financial agent in 
 international trade, (c) To aid the government in its ordi- 
 nary financial operations, (d) To monopolize the power of 
 issuing certificates. 
 
 2. Its term of business shall be thirty years. 
 
 3. The capital of the Bank shall be 10,000,000 yen. 
 
 4. One-fifth of the authorized capital shall be paid in 
 before the Bank may open business and the remainder at 
 the convenience of the stockholders. 
 
 5. The business of the Bank shall not be restricted, unless 
 it tends to unjust and disastrous speculation, in which case 
 measures will be taken. 
 
 6. If the government sees fit, the Bank may be entrusted 
 with the management of the financial affairs of the govern- 
 ment. 
 
 7. The Bank has the right to issue convertible certificates, 
 but at present it shall not exercise this right.'" 
 
 8. The President of the Bank shall be a person of the 
 First Rank and the Vice-President, one of the Second Rank. 
 
 9. The Minister of Finance shall appoint an official who 
 shall inspect the business of the Bank. 
 
 " Count Matsukata's Memorial, dated March i, 1882. 
 "This clause was added on account of the great depreciation of 
 the paper currency. 
 
56 The History of Japanese Paper Currency. [364 
 
 10. The President shall present to the Minister of Finance 
 monthly a report of the condition of the Bank. 
 
 11. The government shall invest capital amounting to one- 
 half of the whole capital of the Bank in the stock of the 
 Bank. 
 
 Meanwhile, the government endeavored to increase the 
 central specie reserve through economy and the introduction 
 of business methods, until, in 1885, it aggregated 2,806,000 
 yen. In May of the same year, by the act proposed by 
 Count Matsukata, the " Bank of Japan " was authorized to 
 issue certificates amounting to 2,645,000 yen. 
 
 Finally, in June, 1885, the government issued the follow- 
 ing proclamation : 
 
 " The government paper notes (inconvertible) shall grad- 
 ually be exchanged for silver coin, beginning in June, 1886, 
 and those redeemed shall be cancelled. The method of mak- 
 ing the exchange fixed by the Minister of Finance and the 
 management thereof shall be entrusted to the ' Bank of 
 Japan.' " 
 
 Conversion began on the date fixed by the decree, and 
 owing to the general tranquillity during the four years fol- 
 lowing, combined with the industrial development and com- 
 mercial prosperity of the realm, the measure was carried 
 to a successful termination. The amount of the specie, 
 bonds and certificates held against the inconvertible notes in 
 1890 is shown in the following table : 
 
 Credit yen Debit yen 
 
 Certifloates 77,615,000 Government Notes 40,065,000 
 
 Specie 54,976,000 Bank and National 26,391,000 
 
 Bonds 33,659,000 
 
 Total 155,330,000 Total 66,456,000 
 
 The next step taken by the government in the redemption 
 of the inconvertible notes was the reform of the bank note 
 circulation. 
 
 The first bank notes were issued in accordance with the 
 Bank Regulation of 1873, ^nd they were convertible certifi- 
 
265] Redemption of Paper Currency. 57 
 
 cates.'° But in 1875 and 1876, when the balance of foreign 
 trade was unfavorable to Japan, and, consequently, the out- 
 flow of specie was greatly enhanced, gold appreciated and 
 there were many demands for the conversion of the paper. 
 It became evident that if the banks continued to redeem the 
 notes as originally planned, not only would such a course 
 be destructive to the banks, but it would also facilitate the 
 outflow of specie. Therefore, four banks of Tokyo appealed 
 to the government to modify the law. Although the authori- 
 ties were aware that evil effects would follow an over-issue 
 of inconvertible bank notes, yet on account of the need for 
 funds to meet the heavy government expenditures caused 
 largely by the commutation of the hereditary pensions of the 
 military class into a public charge, it seemed necessary to 
 grant the banks the power of issuing inconvertible notes." 
 
 For these reasons, a revision of the Regulation was made 
 in 1876, and the bank notes, instead of being converted into 
 specie, were redeemed with inconvertible government notes. 
 The distinguishing quality of the bank note — ^its converti- 
 bility — was thus lost. In 1883, therefore (after the estab- 
 lishment of the Bank of Japan), the government began to 
 consider the reform of the bank note circulation. Two 
 methods were recommended to the government for accom- 
 plishing its purpose : 
 
 1. It was suggested that all the bank notes be made a lia- 
 bility of the Bank of Japan. As to this method, Count Mat- 
 sukata said, " If the Bank of Japan had to-day enough finan- 
 cial strength to be able to issue convertible notes, such a 
 method might indeed be adopted. But unfortunately such 
 is not yet the case." " 
 
 2. Another plan considered was to permit the banks to 
 continue as before during the term of years prescribed in 
 the Regulation, and at the end of the period to require the 
 banks to redeem all their notes. To this also Count Matsu- 
 
 =° Cf., p. 90. , „ '' See p. 80. 
 
 "Count Matsukata's' Report of 1890, p. 240. 
 
58 The History of Japanese Paper Currency. [266 
 
 kata objected on the ground that if, at the end of their term 
 of 20 years, all of the 140 banks sold their bonds at once, 
 a disastrous effect would be produced on the economic affairs 
 of the country. 
 
 3. Count Matsukata proposed that all the reserves of the 
 national banks should be transferred to the Bank of Japan 
 and that each national bank should deposit out of its annual 
 profits an amount of money equal to two and one-half per 
 cent of the amount of its notes in circulation. With these 
 funds — reserves and annual payments — the Bank of Japan 
 should buy bonds, the interest on which should also be 
 devoted to the redemption of the bank notes. At the end 
 of 15 years, if there should still remain any unredeemed 
 notes, a portion of the bonds should be sold and used for 
 the redemption of the outstanding notes. This policy was 
 adopted in May, 1883. 
 
 Entering upon a policy of contraction in 1882, the gov- 
 ernment firmly persisted in its measures. At the end of 
 1884, the paper money was nearly at par, and by 1886 paper 
 and silver were entirely interchangeable. But this whole- 
 some end was not and could not be thus rapidly attained 
 without great disturbance in all other business. "The 
 prices, of course, fell as precipitately as they had risen ; with 
 the fall in prices, distress and desolation extended over the 
 land, and millions of people who had supposed themselves 
 on the high road to wealth suddenly found poverty staring 
 them in the face, while exacting creditors on all sides de- 
 manded the liquidation of debts." " 
 
 But necessity forced many to exertion and with a return 
 to frugality and diligence, production and trade were gradu- 
 ally revived and prosperity returned. At the end of the 
 annual report of 1890, Count Matsukata happily states that, 
 " If we look back upon the financial condition of the country 
 at the time when the government notes fell in value to their 
 lowest point and see the consequent evil effects upon indus- 
 
 ^' The U. S. Consular Report, vol. xix, No. 68, p. 654. 
 
267] Redemption of Paper Currency. 59 
 
 try and commerce, we are conscious of the sense of fear 
 and anxiety felt at that time. But what glory to the country 
 and what blessing to the people! Through the wise man- 
 agement and ardent zeal of the cabinet, step after step, year 
 after year, the measure has advanced and now all the pro- 
 visions for the redemption of the notes are completed." 
 
Bibliography 
 
 The following are the important works which have been 
 consulted in the preparation of this monograph : 
 
 Adams, F. O., History of Japan. London, 1879. 
 
 Bamsen, W., Coins of Japan. Boston, i88q. 
 
 Hosokawa, U., The Cornpendium of Finance of Japan. 
 (Nippon Zai-Sie-So-Ran) . Tokyo, 1890. 
 
 Matsukata, Count Masayoshi, Treatment of Paper Money 
 (Shi-Hei-Shi-Matsu). Tokyo, 1890. 
 
 Annual Reports of the Minister of State for Finance since 
 1 874- 1 890. 
 
 Annual Reports of the Imperial Mint. 
 
 Classification of laws, edict, decrees, etc. (Ho-Rei-Zen-Sho). 
 3 vols. Tokyo, 1894. 
 
 Collection of laws, decrees, etc., classified according to sub- 
 jects (Kem-Po-Rui-Hen). Tokyo, 1876. 
 
 Commerce and Industries of Japan. Tokyo, 1892. 
 
 Official Bulletin (1867-1872). 
 
 Okuma, Count Shigenobu, General Review of the Financial 
 Policy during Thirteen Years (1867-80). 
 
 " The Reminiscence," published in the columns of the Ho- 
 Chi-Shim-Bun. (April, 1893-July, 1894.) 
 
 Reed, Sir E. J., Japan: Its History, Transition, and Reli- 
 gion. London, 1878. 
 
 Rein, Prof. J. J., Industries of Japan, New York, 1889. 
 
 Sashihara, Y., Political History of the Mei-Ji-. (Mei-Ji-Sei- 
 Shi). 3 vols. Tokyo, 1893. 
 
 Taguchi, U., Economic Problems (Kei-Zai-Saku). 2 vols. 
 1889, 1892. 
 
 Transaction of the Asiatic Society in Japan. Supplement 
 
 vol. XX. 
 
 Watanabe, Hon. K., Ex-Minister of State for Finance. 
 Address to the Second Session of the Imperial Diet. 
 
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