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• Banking In Germany.
• Chapter I.: Non-issuing Credit Institutions.
• Chapter II.: German Banks of Issue.
• History of Banking In Austria-hungary.
• Chapter I.: The Austrian National Bank.
• Chapter II.: Austrian Joint-stock Banks and Banking Associations.
• Chapter III.: Hungarian Joint-stock Banks and Private Credit Institutions.
• Appendix to Banking In Germany and Austria-hungary.
• II.: Statistics of Banking In Austria-hungary.
• Banking In the Netherlands.
• Introduction.
• Chapter I.: Era of Exchange Banks.
• Chapter II.: Period From 1814. Modern Dutch Banking.
• Chapter III.: Period 1814-1863. the Netherlands Bank.
• Chapter IV.: The Netherlands Bank, 1864 to 1895.
• Chapter V.: Banks of Issue In the Dutch Colonies.
• Chapter VI.: “cashiers,” Joint-stock Banks, and Private Bankers.
• Banking In the Scandinavian Nations.
• Part I.: Banking In Denmark.
• Chapter I.: History Previous to the National Bank.
• Chapter II.: The National Bank During the First Half of the Nineteenth Century.
• Chapter III.: Private Banks.
• Part II.: Banking In Sweden.
• Part III.: Banking In Norway.
• Banking and Money In Japan.
• Part I.: The Banking System.
• Chapter I.: Common Banks.
• Chapter II.: The National Banks.
• Chapter III.: The Yokohama Specie Bank. ( Shiokinginko. )
• Chapter IV.: The Bank of Japan. ( Nippon Ginko )
• Chapter V.: Land Mortgage Banks.
• Part II.: The Currency of Japan.
• Chapter I.: The Old Coinage System.
• Chapter II.: The New Coinage Period.
• Chapter III.: The Paper Currency.
• Chapter IV.: Readjustment of the Public Debt.
• Chapter V.: The Future Money Standard.
• Appendices.
• Appendix D.: National Debt In Japan. (from the “british Economic Association Journal” of June, 1895.)
• Banking, Currency and Land Tenure In the Chinese Empire.
• I.: China’s Currencies.
• II.: Chinese Banking: Ancient and Modern.
• III.: Land Tenure and Taxation In China.

PART II.

THE CURRENCY OF JAPAN.

CHAPTER I.

THE OLD COINAGE SYSTEM.

THE EARLIEST FORMS OF CURRENCY.

THE ancient records do not give a clear description of the currency of their time. But in a prehistoric period, shells, precious stones, rice, corn, clothing, and other commodities seem to have been used as the medium of exchange. Magatama and Kudatama made of precious stones, which are often dug out of old mounds and caves, were hung around the neck. They served as an ornament, and perhaps also the purpose of money as well. Gold, silver, and copper were imported from continental Asia tens of centuries before the Christian era. It is most likely they were used as instruments of commerce. According to a record in the reign of the Emperor Hansei (406 to 411 ad), gold, silver, and copper coins circulated at the following ratios: One sho* of rice = one mon of copper; ten mon of copper = one mon of silver; ten mon of silver = one mon of gold.

In the time of the Emperor Kenso (485 to 487 ad), we have the first recorded issue of silver coins. In 683 ad, copper coins were made with metal imported as the tribute from Corea, to take the place of silver coin. In 699 ad, a mint was established, whence copper coins were issued. In 708 ad, was coined Wado Kaichin of silver and copper. In the next year, coinage outside of the mint was prohibited, and for payments of four mon and upward, silver was used; while for below three mon, copper was legal tender. Those who coined privately were beheaded, and anyone giving them assistance was exiled. It was not till 712 ad that the taxes were paid with money. As a special favor, the right of coining copper was allowed in 758 ad to Yemino Oshikatsu, an influential courtier. It was in the beginning of the eighth century that an order to use coin was issued, and from this we must judge that barter still existed to a large extent, rice and clothing being chiefly used. Travelers carried rice with them to pay for lodging. In 760 ad, gold, silver, and copper coins were issued. Those who coined privately were arrested in 766 ad and obliged to work in the mint. In 797 ad, in order to accumulate corn, because of pestilence and a failure of crops, the taxes were received in kind instead of in coin.

CONFUSION AND DEBASEMENT OF COINS.

In 818 ad, the responsibility of coinage was imposed on the province of Nagato, and for this work it was freed from the payment of taxes. In 865 ad, the refusal of light coin was prohibited, and in 872 ad the mint was ordered not to debase the coins. It seems, however, that debasement had already begun, and as all sorts of coins issued in different eras, as well as those imported from China and some coined privately, circulated at the same time, great confusion prevailed. Moreover, owing to the prevalence of Buddhism, coins were melted into idols, bells, etc. The coins of China were so much better, compared with the debased coins issued from the mint, as to interfere with the free circulation of the latter. Therefore, in 1091 ad the use of the Chinese coins was prohibited, and in 1230 ad the price of rice was fixed. But in order to meet the demands of the market, merchants were sent to China with gold to be changed into copper coins in 1277 ad In 1407 ad, a Chinese junk laden with Yeiraku* coins arrived, and these coins circulated freely, especially in the eastern provinces, but were prohibited in 1608 ad Not content with presents of coin from China, in 1464 ad Shiogun Yoshimasa sent a message to China to obtain copper coins in exchange for the produce of the country. This way of raising a loan was often repeated. Most of the proceeds were used for his personal expenses, although the avowed purpose was to supply the deficiency of coins. In 1587 ad, silver, copper, and lead coins were issued. In addition to these, gold dust was used as money, being enclosed in bags or bamboo pipes. Also bar gold and gold plates were used by chopping off and weighing, though this currency was limited to large transactions. These served to increase the existing confusion, and commerce was fettered to a great extent. Besides, in each locality all sorts of coins were manufactured, varying in form and weight, causing endless perplexity.

THE KOBANG PERIOD—CREATION OF MINTS—VALUE OF COINS.

Gradually, as the level of prices rose, transactions increased, and the confused state of the currency became no longer bearable. In 1578 ad, large obang and small kobang coins were issued, in addition to plated silver tiogin, by Toyotomi Hideyoshi. Thus the way was paved for the unification of the currency, which, though contemplated by the predecessor of the ruler Nobunaga, was executed by the latter. Gold and silver coins for smaller payments were also issued. In 1595 ad, the Kinza, i. e., gold mint, was established by Tokugawa, and in 1599 adichibu kobang was issued. The legal ratio of gold to silver was 1 to 11.89—much lower than, for instance, in Holland, where it stood at 1 to 14.7; so that gold naturally began to be exported.

In 1601 ad, the Ginza, i. e., silver mint, was established, and it became the monopoly of the Goto family, the examiners of coins. Coins were made in Kioto, Yedo, Suruga, Kai, and Sado. The amount of kobang produced reached 14,727,055 rio, because of the increase of the output of the Sado mines. Though the inscription on the small kobang was printed, that on the larger ones was written with Indian ink, and thus was easily defaced. In case of the coin not being accepted because of defacement, the holder had to bring it to Goto and have it rewritten. Great care was consequently required in the handling. Keichio obang weighed 44.0551476 sen (8.28 sen equal to 1 ounce), its composition being 67.2 per cent. gold, 29.4 per cent. silver, 3.4 per cent. alloy; and its value nearly equal to 76.1473 yen of the present time. Keichio kobang were also made, ten of which weighed 47.3004936 sen, 85.69 per cent. being gold, 14.25 per cent. silver, and .06 per cent. alloy, the value being equal to nearly 102.54984 yen.

Besides, there were square gold pieces, called Keichio Ichibuban, ten of which were equal to one kobang. Silver coins of chiogin and mameitagin were also issued, under the names of Keichio Chiogin and Keichio Mameitagin. These being mere drops of melted silver, the fineness was 80 per cent. silver and 20 per cent. copper. An order was issued fixing the value of the Yeiraku pieces as equal to four iron coins, 250 of the former being equal to bu, or one-fourth of a rio of kobang. But this coin was abolished in 1608. In 1614 ad, refusal of coins, except those cracked, deformed, abraded, or made of lead, was punished by branding the face. This was a consequence of the debasement and popular distrust of the coinage. In 1636 ad, Kuanyei pieces were coined, whose composition was 50 per cent. of copper, 35 per cent. of tin, and 15 per cent. of lead. They were coined exclusively in Sakamoto of Omi and in Yedo. In 1638 ad, foreign trade being regarded as the means of impoverishing the country, was strictly prohibited, the Chinese and the Dutch only being allowed to trade exclusively in the port of Nagasaki. Christianity was also prohibited, and foreign trade, which had been extensively carried on by everybody and everywhere, suddenly dwindled.

SCARCITY OF COIN AND MEASURES TO CONSERVE IT

In 1667 ad, the sale and purchase of copper was prohibited. Next year the copper Daibutsu (Giant Buddha) at Kioto was melted down and made into coins—quite a contrast to the practice of an earlier time of melting down coins for idols. The export of copper was also prohibited. In those days there was an extensive trade with the Dutch and the exportation of gold increased. The exportation of gold coins was prohibited, but without any effect. In 1686, in order to lessen the exportation of precious metals, which had been incessantly going on for centuries, the amount of trade with Corea was fixed at 18,000 rio, and that of Riukiu at 2000 rio per year. The recoining and debasement of gold coins were practised in 1695 to supply the financial deficiency and to increase the profit of the hereditary superintendent of the mint, viz., Goto. But the chief cause was the scarcity of the precious metals, owing to the increased exportation, only 8,634,000 rio of gold and 77,000 quan* of silver remaining out of 14,727,000 rio and 1,200,000 quan, respectively, coined. The output of the precious metals also decreased, and the only alternative left was debasement of the coinage. The plan was formulated by a financier named Ogiwara Ominokami Naohide, and was adapted to the needs of the time, about 5,000,000 rio of genroku obang being coined. His opinion took the extreme ground that “when issued by the State, even tiles and pebbles can be used as currency.”

Old coins were ordered to be exchanged in 1699 into the new ones at par, but actually the latter were at a discount of twenty per cent. This was inevitable, as they differed very greatly in fineness, as will be seen from the following comparison:

It was also ordered that stored silver should be sold to the mint. The use of gold and silver in stock transactions and the hoarding of silver coins were prohibited. However, the hoarding of the old coins went on, those available being melted down and changed into counterfeited new coins. In 1706, hoyei silver was issued, but as it was greatly debased it did not circulate at all, the fineness being fifty per cent. only, which, when compared with keichio silver’s eighty per cent. fine and genroku silver’s sixty-four per cent., was a great deterioration. Hoyei copper was issued, but was withdrawn on account of its inconvenience. The efflux of silver, and especially of gold, continued, and the amount exported after 1648 has been estimated at 25,473,000 yen of gold and 58,000,000 yen of silver. Measures were taken to discourage the exportation of the precious metals, but to no effect. It was in these times that the Europeans came in search of gold, making great profit by changing it for silver and merchandise.

FRESH DEBASEMENTS OF THE COIN.

Compelled by financial difficulties, another reduction of the size and fineness of the gold and silver coins was effected in 1710. The fineness of the silver coin was only thirty-two per cent., and in some cases but twelve per cent., the rest being copper, and the value of ten kobang was equal to 52.54308 yen, the composition being 83.40 per cent. gold, 16.55 per cent. silver, and .05 per cent. alloy. The monetary ratio of kobang was fixed, and the value of the old and new coins was ordered to be alike. But these restrictions were futile; prices rose, people suffered, and counterfeit coins made their appearance. Arai Hakuseki urged the necessity of remedial measures by raising the fineness and even lessening the amount of circulation. Although his enlightened views were opposed by many, especially by Buisumokoio, the inflationist, they were adopted in 1714, kobang being issued of the same fineness as that of keichio (1591 to 1614). Then prices began to fall, and general credit recovered.

VICISSITUDES OF THE COINAGE FROM 1715 TO 1884.

Another restriction of the export of copper and of the number of Chinese and Dutch vessels admitted to the ports of Japan was ordered in 1715, and next year kioho kobang was issued of the fineness of 86.70 per cent. gold, 13.25 per cent. silver, and .05 per cent. alloy. Ten of these were equal to 103.07247 yen. The obang was also struck equal in fineness to that of the keichio period. Prices went down, but not to the extent desired, because the new coins were hoarded. So prices were lowered by compulsion of legal penalties. Coin and copper were still exported; and in 1736, Dutch vessels lying at Nagasaki were ordered to return, their number being restricted to twenty-five. Again debasement of the coinage was resorted to, and genbun coins were issued more or less under value, the inflationists’ view being adopted; an arrest of the fall of prices and the deficiency of coins being the plea. The composition of the new coins was 65.32 per cent. gold, 32.53 per cent. silver, and .15 per cent. alloy, ten of them being equal to 58.69374 yen.

In the case of silver coins, the fineness was only forty-six per cent. In 1742, the burying of coins with the dead* was prohibited, and the use of silver as ornaments was forbidden in the next year. In 1765, miowa silver coin was issued of forty-six per cent. fineness, being necessitated by the influx of silver in exchange for gold, which was enormously exported by the Dutch. In 1768, kuanyei tsuho were coined, consisting of 68 per cent. of copper, 24 per cent. of lead, and 8 per cent. of tin. These are still used as equal to two rin; and in 1772 anyei nan rio silver was made of 97.75 per cent. silver and 2.25 per cent. alloy, equivalent to 3.289 yen. The maximum abrasion was fixed at .004 per cent. in 1779. In the next year, Zeniza, or the mint for copper and iron coins, was opened in Osaka. In 1818, the financial difficulties of the Tokugawa Government increased, and new kobang was issued in 1819, more or less debased. The silver coins were also reduced in value, becoming 29.84 per cent. gold, 69.99 per cent. silver, and 17 per cent. alloy, equal to 2.944 yen. Hitherto, the silver coins being less debased, they were preferred to gold; but now, when the former were also recoined, the state of the currency fell into utter confusion.

In 1835, tempo sen was issued, consisting of 78 per cent. copper, 10 per cent. tin, and 12 per cent. lead, in order to redeem paper notes of the Daimios. But as the stock of copper became deficient, this scheme miscarried, only the bulky and unpopular coins remaining. This coin circulated at an equivalent of eight rin, but was abolished in 1884, and after 1896 it is irredeemable. The value of gold fell as compared with silver, and the ratio stood as low as 1 gold to 4.64 silver. Recovering a little in fineness, five rio tempo coin was issued in 1837, the composition being: gold, 83.75 per cent.; silver, 16.65 per cent., and alloy, .20 per cent., or equal to 19.05926 yen. Ichibu silver of 99.14 per cent. fineness, ten rio of which were equal to 14.1746 yen, was also issued, besides many other denominations. In 1838, to supply a pressing demand, tempo obang was issued, equal in fineness to that of the keichio period, and chio and mameita silver were largely coined.

COINAGE UNDER THE NEW COMMERCIAL ERA.

In 1853, Commodore Perry, of the United States Navy, came with his fleet to Uraga, and, awakening Japan from her long slumber and seclusion, induced her to open the country. The new era dawned, and after this the popular bent was radically changed. His arrival shook the nation, and the Tokugawa Government began to build fortresses and import men-of-war from Holland. But such a sudden increase of expenditure was beyond the power of the distressed Government. So again the usual method of resorting to the issue of debased coins was adopted, and one-siu kayei silver was issued, consisting of silver, 96.78 per cent., and alloy, 3.22 per cent.; ten rio being equal to 12.09173 yen. In the next year the use of gold and silver for other purposes than coinage was forbidden. The treaty with the United States of 1854 expressly allowed the receipt of American coins in payment of Japanese goods. In 1856, ansei nibu gold was coined, in fineness being: gold, 20.92 per cent.; silver, 78.87 per cent., and alloy, .21 per cent., ten rio being equal to 19.40124 yen. The export of gold continued, foreigners buying gold at one per cent. premium. This they were glad to pay, because the gold kobang (18s. 2d.) was equal to four of one-bu silver (1s. 4d.), and they made a profit of 12s. 10d. every time they exchanged silver for gold. In 1859, Yokohama was opened to foreign trade. Foreign gold and silver coins were ordered to be circulated, weight by weight, with the coins of the realm, after being stamped in the mint. The new ichibu silver was issued of the same fineness as the foreign coins. By this means it was hoped that the exportation of gold would be checked. Besides ansei, two-siu silver was issued of a fineness of 84.46 per cent., ten rio being equal to 38.009 yen. In addition to ansei, a gold kobang was issued, with 56.97 per cent. of gold, 42.82 per cent. of silver, and .21 per cent. of alloy, ten rio being equal to 35.72835 yen. Ichibu gold was also coined. In 1860, new kobang and obang were issued, the former being 57.36 per cent. gold, 42.40 per cent. silver, and .24 per cent. alloy; ten rio being equal to 13.295 yen, while the latter were 34.35 per cent. gold, 63.92 per cent. silver, and 1.73 per cent. alloy, each piece being equal to 28.829 yen. Ichibu, nibu, and nisiu gold were also coined, containing 22.85 per cent. of gold, 76.95 per cent. of silver, and .20 per cent. of alloy, ten rio being equal to 11.088 yen. The ratio of gold to silver was raised to 1 to 15.58 to stop its continuous exportation. In 1863, bunkiu money was coined, which, though circulating till now as an equivalent of one and a half rin, is gradually being melted down at the mint and nickel coins served in its stead. The amount of gold exported after 1859 was inconsiderable, as its ratio to silver was made to correspond closely to the price abroad, as shown by the following table:

The effort was made to fix prices by law, but it was ineffectual, and in 1866 riots broke out in many districts, being most violent in Yedo, Osaka, and Hiogo. The Tokugawa family had, thus, its hands full of the difficulties of coinage affairs, especially after resorting to the policy of debasement. The varieties of coins which were in use were:

These varied in fineness, name, size, weight, and form—there being sixty-six different ones in all. Besides, there were many copper and iron pieces, which also varied a great deal. The whole system was left in confusion, and the resultant inconvenience and suffering of the people were almost beyond description. To show the composition and the amount of coins issued by the Tokugawa Government, the following tables, compiled by Sato Chiwsaburo, are inserted:

CHAPTER II.

THE NEW COINAGE PERIOD.

READJUSTMENT OF COINS AND NEW MINT, 1868-1891.

THE year 1868 saw the restoration, but the coinage system was still unsettled. Old coins were used for convenience’ sake, though they were not favored by the new régime, which was characterized by the domination of a revolutionary spirit. In February, the value of the Mexican dollar was fixed as equivalent to three bu, and in March, that of the onemon copper piece as equal to six pieces of iron. In April, all copper was ordered to be sent to the Osaka mint, and private dealings in it were prohibited. The values of old kobang and foreign coins were also fixed in detail. In May, the chiogin coins were demonetized and bought up by the Treasury. In August, the stamping machines bought from Hong-Kong, where they had become useless, arrived, and the intention to issue new coins became a fact. In November, Mr. Walters was hired for the construction of the mint establishment in Osaka, and by the next year the Imperial Mint was organized and presented samples of new coins. The old mints were thereupon abolished, and the old denomination was supplanted by the decimal system, chiefly through the influence of Count Okuma. The services of Englishmen to be employed in the new mint were contracted for through the Oriental Banking Corporation. Tempo coins, however, were still largely manufactured for the use of Yezo Island. For this purpose, and perhaps also to make them defenceless, cannons were purchased from Daimios. Complaints being made by the foreign diplomatic corps, the imitation of coins was prohibited, and the ichibu silver and nibu gold pieces were declared to be legal tender till the new coins came out. The gold, silver, and copper products of the mines were ordered to be sent to the mint for coinage, and private sales were prohibited. Mr. Kinder and his staff arrived, and soon commenced making new coins. Due notification of the issue was made to the foreign ministers, with the declaration that coins were to be 10, 5, and 2½ yen gold pieces, and 1 yen, 50-cent, 20-cent, 10-cent, and 5-cent silver pieces, with three kinds of copper coins, and that the standard was to be one silver yen. A law was promulgated under which the maker of counterfeit currency was to be hung and those who assisted him or who used the false coin decapitated. These penalties were, however, moderated later on.

In November, the one-yen silver piece was issued. In January of 1871, the free opening of the Osaka mint was made known to the foreign ministers. In February, the opening of the mint was celebrated in presence of the diplomatic corps.

THE GOLD STANDARD ADOPTED 1871.

In May, silver was demonetized and the gold standard was adopted, subsidiary silver coin being limited to ten yen and copper to one yen. The gold piece was nine-tenths fine, the twenty-yen piece weighing thirty-three and a third grammes. Still the old coins circulated, and the confusion was great. So an order was issued to exchange them into new coins at the rate of

The ratio to foreign coins was also fixed as follows: 10 gold yen equals £2 sterling, or 50 francs, or $10. In April, the Coinage Act was promulgated. The trade yen was also coined for the use of commerce and for customs duties at the rate of 100 silver yen to 101 gold yen. Mintage was fixed for gold yen at one per cent., and for silver yen at two per cent. If the fee of 5/1000 in case of gold and 10/1000 in case of silver were paid, abraded coins were recoined. The values of paper currency and old copper coins were fixed at:

FURTHER REVISIONS OF COINS.

In 1872, the Emperor visited the mint, and the form of one-yen gold and five-cent silver was modified. In November, the size and weight of coins were changed as follows:

In January, 1873, the form of the silver coins was modified, and in August two-cent copper pieces were struck, the form of other copper coins being also modified. In 1874, the form of the trade yen was amended, and the mintage charge was reduced to 1½ per cent. The exportation of copper coins was again permitted. The weight of one yen was increased and the new trade yen issued (decreased in weight in 1878); the size being 1.5 inches, the weight being 420 grains, the fineness being nine silver to one copper, and its marginal difference one grain, its fineness 2/1000 and the mintage charge 1½ per cent. In July, the amended Coinage Act was promulgated, and this remains in force at the present time. Details will be found at the end of this chapter in tabular form.

In 1876, the value of the trade yen was made equal to the gold yen, and the examiner of coins, in banks or exchange houses, was ordered to cut in pieces any imitation currency. In 1878, the use of the trade yen was extended to any payment, its weight being decreased to 416 grains, and the 420-grain trade yen was no longer coined. By Law No. 2, the defacement and melting of coins, and other acts to obstruct circulation, were prohibited. In 1883, the mint regulation was extensively revised, the main points in it being: 1. The mint in Osaka and its branch in Tokio to be open from 9 a. m. to 1 p. m. to the public, excepting on Sundays and other national holidays. 2. Bullion is not accepted except in the case of gold above 250 momme—1 momme equals 57.87 grains troy—of silver above 2500 momme, and of mixed alloy above 200 yen. 3. The expense of experimental melting is to be borne by the importer. 4. Coins for imported bullion can be obtained at the Bank of Japan, Tokio, or its branch office in Osaka, its agencies in Yokohama or Kobé (the Specie Bank branch office) after five to forty days, varying with the amount to be received. Those desiring to get the coin before the date can do so by paying a discount of four per cent. 5. The mintage charge for gold to be 7/1000 and for silver 10/1000. But if experimental melting be required, 1/1000 more must be paid. 6. If the abrasion of coins be above 35/1000 in case of gold and 5/1000 in case of silver, they will be exchanged at the main and branch offices of the Bank on the day following.

In 1884, the use of tempo was ordered to cease by the year 1886. In 1886, the legal term of the circulation of tempo sen was prolonged to the end of 1891. But, by Law No. 13 of 1890, the years of grace for coins the circulation of which has ceased were fixed at five years in general, and at three years in case of ten-cent paper money; so that tempo sen becomes defunct in December, 1896. In 1888, nickel coin was issued to supplant tempo and other old copper coins. In 1889, the coins found difficult to circulate were ordered to be exchanged at their full value if not light, and if light, at their intrinsic value, at the Bank of Japan. The Bank was also intrusted, in 1890, with the purchase of metals to be used by the mint.

Such are, in rough outline, the changes which have taken place in our coinage system. The development has been very remarkable, the country emerging from a most chaotic condition of its coinage to a sound system of currency within a comparatively few years. The new coins circulate not only throughout the country, but even in the Straits Settlements, Hong-Kong, China, Corea, and Formosa. Plans formed in Hong-Kong to keep them out are not likely to succeed, and in the Straits Settlements, Japanese coins are made supplementary to the British dollar, which might not have come into existence if the Japanese mint had been able to meet an overwhelming demand for coinage. At least once a year the work of the mint is examined by the Minister or Vice-Minister of the Treasury. Never has any irregularity or illegal deviation been discovered in the coinage, and the mint may be trusted as implicitly as that of Western countries.

THE VIRTUAL DISUSE OF GOLD.

Of the coins issued, the gold ones are seldom seen in daily transactions. Most of them were either exported or are hoarded by the wealthy class. This is, perhaps, the result of silver being the practical standard of the country, and, consequently, gold being more or less cheaper, as compared with silver, than abroad. How gold is cheaper than in London, and has been exported more than silver, may be seen from the following tables:

CIRCULATION OF COINS.

The full-value coins in actual use are of silver; the Bank of Japan notes, the Government paper money, and the national bank notes being all convertible into silver. But silver one-yen being bulky, the Bank of Japan notes are by far the most common currency of daily use, except for the purposes of foreign trade. Of the subsidiary silver coins, the ten-cent pieces are the most liked, the twenty-cent being too large and the five-cent too small. The nickel coin is handy and much in use. This was issued to take the place of tempo sen and other old copper coins, as already stated, and the material being very cheap, the profit of the mint is increased by the manufacture of nickels. However, the use of old coins has not quite ceased, being necessary in small transactions, especially in rural districts. The gradual rise of the unit of value may, however, in course of time let them die out, as happened in the case of English farthings. They are much more liked than the new one rin, which, being too small, does not circulate at all. A great deal of old coin has been melted down, as shown below, and much has been exported to China and Formosa. Still, much remains in circulation, although it is difficult to calculate how much, on account of the uncertainty of the original amount of issue.

COUNTERFEITING OF COINS.

Counterfeiting is not very common, but if it exists it is in the case of the one-yen and the nickel five-cent pieces. It is done very skillfully and perhaps with a regular plant of machinery on a large scale in the southern part of continental Asia, where a regular business of counterfeiting is said to be carried on. Not only our coins, but the Dutch, the Mexican, and the British dollars are extensively counterfeited. This industry must be put an end to by outside force, if the Government of the country is too low in practical morality or weak in administrative control to suppress it. Here in Japan even petty cases are immediately discovered, and the following provisions of the penal code are strictly applied:

1. Those counterfeiting or circulating counterfeits of the gold or silver coin or paper money of the realm are imprisoned for life, and those offering it are imprisoned, with light labor. 2. Those counterfeiting and putting in circulation foreign currency are imprisoned for a time, and those exchanging and using it are imprisoned, with hard labor, from two to five years. 3. The forgery and use of the notes issued by the banks are punished according to either of the preceding articles. Those who counterfeit and use counterfeits of the copper coins of the Empire are imprisoned, with light labor, and those who exchange and use them imprisoned, with hard labor, between one and three years. 4. If the coin is not placed in circulation, the penalty is lightened one degree, and if not actually struck, two degrees. 5. For those who deliberately enter the employment of a counterfeiter, a penalty is inflicted which is one degree less than that of the employer. 6. For those letting a building or rooms to counterfeiters the penalty is two degrees less. 7. Importers of prohibited coins are punished in the same way as counterfeiters. 8. For those who receive and use illegal coins, the penalty is lessened two degrees, and if not actually used, three degrees. 9. Those who repent and declare their offence before its execution, are pardoned. 10. Those who use bad coins after receiving them, without knowing them to be so, are fined in double the amount actually used.

Thus, if the external illegal traffic in false coins can be stopped, all trace of counterfeiting will practically cease to exist.

CHAPTER III.

THE PAPER CURRENCY.

A

CHAOTIC PERIOD.

AT the time when the state of the metallic currency was utterly confused and coins were greatly discredited, it was natural that paper money should not obtain much credit. It is related by historians that, in 1334, an order was issued by the Emperor Godaigo directing paper money to be used together with copper coins. But on account of the prevalence of civil war and the generally unsettled state of affairs, it is doubtful whether the paper actually circulated. After this, we hear nothing about it till 1615, when a paper note was issued, and used for the payment of the excavation work of the canal in Osaka. This was equal to seven bu in silver. On the face was written, “Issued for the canal work of Osaka as a permanent treasure of the people,” and on the back the name and signature of Kikioya and Kinokuniya firms, who were possibly charged with its redemption. Also, in 1866, 100,000 rio of 100, 50, 10, and 1 rio, 2 and 1 bu notes, were prepared for the use of the harbor works of Kiogo, to circulate in the country around Kioto. But it was never actually issued. However, about 300 Daimios of different districts issued paper notes (Han Satsu) to circulate within the limits of their own rule. Innumerable kinds of these notes existed, over-issue and counterfeiting being common; so that the state of the paper currency was one of hopeless confusion. This practice began with the grant to the Daimio of Fukui in the latter half of the seventeenth century, as an offset to the failure to carry out the promise of increasing his revenue. That privilege was abused, and many Daimios, to bridge over their financial difficulties, obtained a similar grant. At first, the date of redemption was prescribed, but this not being adhered to, the grant was withdrawn. Such a prohibition, issued toward the end of the Tokugawa dynasty, was of no effect, because the prestige of the dynasty had dwindled almost to nothing. Over-issues continued common, and some issues were made without any permission at all. These notes were not only depreciated in value, but were of all grades of depreciation, some being without any value at all. The amount which came into circulation is shown in the following table:

In 1871, the new Government announced its intention to assume the responsibility of converting, gradually, the notes issued by Daimios at the current value of July of that year, allowing them to circulate within the district where they were issued until actually converted. In 1872, those above five cents were redeemed, and by Law No. 122 of 1874, it was announced that those below five cents were also to be replaced by a silver token, and the new paper money issued by the Central Government. Thus the innumerable and endlessly varied notes were taken up entirely to the satisfaction of their holders and of the world of finance.

ISSUES OF INCONVERTIBLE PAPER BY THE GOVERNMENT AND DAIMIOS.

In 1868, Tokugawa Keiki surrendered the administrative power into the hands of the Emperor, and, with the Restoration, the idea of the assimilation of the paper currency took hold of financiers such as Mitsuoka. The issue of notes was, however, necessitated in reality by the rapid increase of expenditures and by consequent financial difficulties. In May, paper money, called Daijio Kuan Satsu (notes of the Treasury), was issued, having a term of thirteen years. These were lent to each Daimio at the rate of 10,000 rio per 10,000 koku of revenue, to be repaid in thirteen years’ installments, with ten per cent. interest, and to be used for productive purposes. Besides, rich merchants and agriculturists were allowed to borrow according to the amount of merchandise which they handled. This note was, of course, inconvertible, although those paid into the Treasury were not used again. Hence, the circulation of paper was very difficult, and even in Tokio, Osaka, and Kioto it was at a discount of sixty per cent., while in the country it did not circulate at all, the people regarding it with suspicion and distrust. This was inevitable, because the stability of the new Government was doubted, and the people had had a disastrous experience with the notes issued by the Daimios, who had often repudiated the just claims of their holders. People were advised, entreated, nay, even threatened, to use the new paper notes. They were declared to be receivable for public dues, their discount was prohibited, the offender being imprisoned, and local authorities were commanded to do their best to extend the use of the notes; but the effort was futile. The Government yielded at last, and the prohibition against circulating the notes at a discount was withdrawn. The decree went further, and publicly recognized the right to receive the paper at twenty per cent. discount for the payment of taxes, as well as to pay it out for salaries at the average market rate. This increased the popular distrust, and the fluctuation of the value of the notes was incessant. Consequently, again, in February of 1869, the dealing in the paper currency at a discount or its exchange for specie, was strictly forbidden. In May, it was announced that the Government intended to convert the paper when the new coinage system was established, and the term of its circulation was shortened to five years. The amount of issue was made public and found to stand at 32,500,000 yen, of which 13,000,000 yen was lent to Daimios and prefects. The Government bound itself to issue no more, and to convert that outstanding into specie within four years, interest at six per cent. being paid to the holders. A heavy penalty was imposed for the offence of discounting the Government paper. But the use of the notes did not expand, and where they were used at all they were converted into specie, which was sent into the rural districts, so that in chief cities only paper remained. So, in June, every Daimio and prefect was ordered to take 2500 yen per 10,000 koku* of revenue, and send to the Government the equivalent sum in coin. This was arbitrary and oppressive in the extreme, but it was reluctantly obeyed.

At this time two counteracting causes were in operation. The one was the distrust of the coinage, which was left by the Tokugawa dynasty in a confused state, and which was still debased by each Daimio, who coined two-bu gold pieces of gilded silver or copper. In such a state of affairs paper notes began to attract confidence by comparison. The other was the circulation of notes issued by Daimios, which narrowed the sphere for the use of the Government paper money. By the time of the Restoration, every Daimio was in straitened circumstances, and they issued notes in profusion. The obligation of redemption fell upon the shoulders of the Central Government, so that these notes were the same as if issued by the latter. Consequently, in December, the issue by Daimios was restricted to the amount granted by the Tokugawa Government. Those issued since the Restoration and without any permission were ordered to be canceled, no more being allowed to be issued, and those already issued being redeemed. Still, notes and bills were secretly issued, and a strict order was promulgated placing the manufacture of paper to be used for notes under the Government control. Nevertheless, as coins of small denominations became very scarce, two-bu, one-bu, two-siu, and one-siu paper notes were issued in exchange for larger ones, and were called Mimbuh, Shio Satsu. Besides, notes were issued by private companies in Tokio, Osaka, and Kioto, and by 1870 in Tsuruga, Nügata, and Kobé. In the latter year, the counterfeiting and depreciation of paper money increased, and Mr. Ito petitioned the Government to allow him to sail over to the United States to study financial and economical affairs, and especially the method of the conversion of paper money. The form of the paper money being very simple, forgery was easily done, mostly by the Chinese; and in this year the making of the notes was confided to Dondorf & Neumann, of Frankfort, who made notes for the Italian Government. The denominations were of 100, 50, 10, 5, 2, 1, and ½ yen, 20-cent and 10-cent notes, which showed a great improvement in design, but were very fragile.

THE TREASURY ASSUMES REDEMPTION OF THE DAIMIO NOTES.

In 1871, all the Daimios surrendered their fiefs, and 1694 kinds of notes issued by them, to the amount of 138,551,132 yen, ceased to circulate, the Government assuming the responsibility of redemption at the market quotation of July. The specie, rice, and paper notes in the redemption fund amounted to only 345,548 yen. The work of redemption was not quickly executed, the difficulty of collecting small notes of below five cents rendering the task almost hopeless. Consequently, smaller notes were paid out again, although larger ones were canceled as they were received. The new issue of paper notes by Daimios was prohibited, and the machines used for this purpose were confiscated. The paper money was ordered to be used as the equivalent of new coins. Moreover, for the purpose of providing specie and making good the deficit in the Treasury, notes were issued through the hand of Mitsui Gumi, having a specie basis for half of the issue. But the paper and printing were very rough, and forgery was very common.

In 1872, a note of about the same character was issued by the Kaitaku Shi (Yezo prefecture) to meet its expenditures. The new paper money was given out, and the old, which was received by the Treasury in exchange, was burned in the presence of the crowd. At first, notes above fifty cents were converted; those under fifty cents being continued till the manufacture of new subsidiary coins. Against 24,935,000 yen of outstanding Daimio notes, 22,910,000 was exchanged for the new paper money, the rest being already redeemed by Daimios or lost. It was impossible to fulfill the promise to repay in specie the holder of Government notes; therefore, the Kinsatsu Hikikaye Kosai (paper note conversion bonds) were issued in 1873. These were given to the holders of notes, and they bore interest at six per cent. The law of this loan was amended in 1880, and payment of the principal and interest was provided for in specie, so that if the paper fell, the demand for the issue of this loan would increase, thus keeping up the value of the paper. The bonds were registered, but were changed into unregistered forms in 1883. However, by 1886, the paper money being at par with silver, the necessity for issuing the bonds ceased. As to the kinds of notes circulated, five in all, the following table gives all needful details:

OVER-ISSUES PRODUCE DEPRECIATION OF PAPER AND A RISE IN PRICES.

In 1873, in order to cover the deficit, the Government was obliged to issue notes held as part of the reserve. They fulfilled nearly the same purpose as Treasury notes, and were made use of up to 1882, being finally withdrawn in 1883. Thus, the outstanding amount of paper money had greatly increased between 1873 and 1878, the maximum amount of new notes reaching in the latter year:

In 1875, by Law No. 3, all paper currency previously issued was converted into newly manufactured notes. With the increase of paper money, an increased importation of merchandise and an efflux of specie took place. The revision of the National Bank Act in 1876 and the consequent issue of bank notes, which reached 34,429,635 yen in 1879, aggravated the evil. Depreciation of paper money as compared with specie, and a rise of prices, commenced, as shown in the following table:

CHAPTER IV.

READJUSTMENT OF THE PUBLIC DEBT.

RETIREMENT OF CIRCULATING NOTES.

IN 1878, the plan of redemption of the paper money and the national debt was prepared. It was published in the next year. By that time, the depreciation of paper money had reached over twenty-five per cent. Startled at this, the Government sold out silver to the amount of 2,400,000 yen in April. By this, the price of paper somewhat recovered, but when the sales ceased in July, the discount on paper not only advanced to the former figure, but in April, 1880, it was as much as 57.9 per cent. Again 6,000,000 yen of silver was thrown on the market, but with the same result as before, and the Government was obliged to give up the fruitless idea of artificially raising the value of paper. It is unfortunate that it did not resort to the remedy of contracting the volume of the notes. Dealings in gold and silver were prohibited on the Stock Exchange. The Yokohama Specie Bank was instituted to collect specie at home and to call it in from abroad. These precautions did not much improve the matter, and at last the Government turned toward the real remedy. The tax on sake (a beverage brewed from rice) was increased, and with the added revenue, the paper money was to be redeemed.

The demand for the note conversion loan increased, because not only the interest but the principal was to be paid in specie. In November, a retrenchment of 1,000,000 yen in the central and of 2,500,000 yen in the local budget was proposed, the proceeds to be devoted to the redemption of the notes. The Government factories* were sold and the payments abroad for diplomatic services, etc., were to be made from the specie collected at the custom-house. The existing paper notes being brittle, easily forged on account of the poor coloring and by being of the same size for all denominations, were replaced by new ones made at the Government printing office, which, by careful and earnest efforts, improved the type. The depreciation of paper reached its climax in 1881, and in April it was one day at a discount of eighty-one and a half per cent., and on the monthly average of seventy-nine and a half per cent. From this cause, the income of the Government lost nearly half of its purchasing power. Officials and others who lived on fixed incomes suffered greatly. Interest rose, Government bonds fell, and the price of rice advanced. Rice being the most important element of the people’s food, its rise or fall affects, sooner or later, all prices. This must be always borne in mind by those who study economic movements in Japan. Moreover, the agricultural class pay most of the taxes, and comprise the majority of the population. A rise of the price of rice, which was equivalent to making them well off and thus increasing their purchasing power, promoted the importation of articles consumed by them, such as sugar, oil, blankets, flannel, watches, wines, tobacco, etc. In this year, the rise of rice produced this effect, increasing importation and quickening the efflux of specie. Speculation was stimulated, as the fluctuation of prices was incessant, while sound enterprises were checked by a high rate of interest. How matters stood may be seen from the following table:

Average value of paper per one yen in silver: 1877, 1.033 yen; 1878, 1.099 yen; 1879, 1.212 yen; 1880, 1.477 yen; 1881, 1.696 yen. Average price of rice per koku in Tokio: 1877, 5.150 yen; 1878, 6.200 yen; 1879, 8.210 yen; 1880, 10.130 yen; 1881, 10.485 yen. Average price of seven per cent. pension bonds: 1878, 83.495 yen; 1879, 81.302 yen; 1880, 71.851 yen; 1881, 69.500 yen. Average rate of interest for loans (for above one hundred yen): 1877, 10.03 per cent.; 1878, 10.54 per cent.; 1879, 12.57 per cent.; 1880, 14.14 per cent.; 1881, 15.22 per cent.

MINISTER MATSUKATA’S INTERVENTION.

How to overcome the difficulty, and allay the stormy condition of affairs was the question of the time. Some proposed to raise a foreign loan of 50,000,000 yen and redeem the paper, while some advised the issue of lottery bonds for the same purpose. These schemes were put aside by the new Finance Minister Matsukata, who occupied this trying position in October. His opinion was decidedly against the raising of a loan, especially an external loan, and was also against inflation. With an enormous amount of depreciated inconvertible paper money (15,483,242 yen), unreliable revenues, and ever-increasing expenditures before him, he boldly pulled up the anchor and took the helm of the ship of finance. His first care was the redemption of the paper money, then its conversion into specie, next the organization of the central bank, and, after all, the establishment of savings-banks and the Crédit Foncier. His policy was opposed by many, especially by speculators and inflationists. He had opponents not only outside but also within the Government. But his resolution was unassailable, and though the result seemed doubtful at first, complete success was finally attained. His policy was not only to contract the volume of the paper money, but to increase the specie basis at the same time. The retirement of notes was to be effected by means of the yearly surplus, which was estimated to be nearly 7,000,000 yen at the time of his assuming the responsibility of office. But in 1882, bad times set in, revenues decreased, while the expenditures increased, and the expected surplus was found hard to realize. So, the new taxes, such as the stamp duty on drugs and the tax on rice exchange, were imposed, together with an increase in the rate of tax on sake and tobacco. At the same time, retrenchment was enforced, and no increase in expenditures was permitted for the period of three years, viz., from the beginning of 1882 to the close of 1884. These rigorous measures were the turning-point in the process of financial recovery. However, the surplus was not all devoted to note redemption, only one-half being used for the increase of the reserve fund, with which the specie was purchased.

To the above 13,640,000 should be added 7,166,806 redeemed in 1878; 2,000,000 redeemed in 1879; 2,000,000 redeemed in 1880; total, 24,806,806 yen. Thus we get the total amount redeemed by the aid of the surplus between 1878 and 1885. Besides, by the issue of the Kinsatsu Hikikaye Loan, nearly 4,000,000 yen more was redeemed. By the use of the reserve and the redemption system of the national bank notes, 18,000,000 yen more of inconvertible notes were canceled. At the same time, the increase of specie was continued by the utilization of the reserve.

To return to the history of this reserve we must mention the name of another financier, Mr. (now Count) Inouye. He set aside 11,330,000 yen from the money in hand for the payment of the Government debts and paper notes in 1872. This sum consisted of specie surrendered by Daimios as the fund to redeem their notes, and of revenues outside of taxes. It was to be used for the purchase of specie as well as the redemption of Government bonds and paper money. The increase of the fund was persisted in, the annual surplus, which reached 20,000,000 in 1875, being turned over to the reserve. In 1878, this fund was divided into two, one for the redemption of paper money and the other forming a sinking fund, which was abolished in 1882, when again the whole sum was devoted to the increase of specie.

GROWTH OF THE METALLIC RESERVE.

It will be observed that the amount of paper decreased, while the specie increased. This increase was secured by the means of foreign exchange. In 1880, large sums were placed in the hands of the Yokohama Specie Bank to increase the import of coin and bullion. But it was not very productive at first. However, by experience and caution, failure was converted into a great success. In 1884, not only were payments abroad done by the means of bills of exchange, but enormous amounts of silver coin and bullion were imported, so that, as shown below, the metallic basis of the notes greatly increased:

To be correct, the national bank notes should be added to the calculation; but if so, the reserve will be only a little weakened.

The value of paper gradually rose, and the discount fell to five and a half per cent. in 1885. Specie also flowed in through an excess of exports over imports. Prices and the rate of interest declined, while the Government bonds rose in price. The state of the national finances became stable, sure, and sound, but still the annual surplus was devoted to the increase of specie.

CREATION OF THE BANK OF JAPAN.

Thus, the scheme of restoring the value of the paper money being crowned with success, the cherished hope of establishing the central bank was carried out in 1882. In 1883, the redemption scheme for national bank notes was executed, and in 1884 the Convertible Bank Note Act was promulgated, followed by the issue of notes by the Bank of Japan in 1885. In this year, also, the law was promulgated to convert “gradually” the Government paper money into silver after 1886, and to cancel the so converted paper at the Bank of Japan, according to the direction of the Minister of Finance. The specie contained in the reserve was handed over to the central bank for the conversion, which began with January, 1886. But as paper was at par, very few applied for redemption. The next thing done this year was the abolition, in June, of ten-cent notes. As a matter of order, the conversion of fractional paper money had to precede that of notes above one yen. This was one of the reasons for the step; the other was the too great abundance of small notes,* having the effect of driving small silver coins out of circulation. The amount of ten-cent notes redeemed up to March, 1890, was 4,645,561 yen, out of a total of 5,025,848.10 yen of original issue, the difference being mostly lost.

CONSUMMATION OF THE NOTE-CONVERSION SCHEME.

The conversion of paper changed the whole economic aspect. Interest fell, true industrial and commercial prosperity set in; railways, cotton mills, and other companies sprang up in succession; foreign trade increased, and real and healthy improvement was seen in every branch of business. The conversion of the national debt also increased the supply of capital for productive use.

The Government paper was so far only gradually convertible. This was regarded as untrustworthy and insufficient. In 1888, the Convertible Bank Note Act was amended to enable the Government to borrow 22,000,000 yen at two per cent. interest from the Bank of Japan, in return for permission to expand the limit of the issue of notes on security to 70,000,000 yen. This 22,000,000 yen was equivalent to then existing unredeemed paper money, because, although the sum outstanding in May, 1888, was 52,115,148 yen, of this, 8,447,712 yen was fractional currency, and against 21,667,436 yen there was a corresponding amount of specie to be used for redemption purposes. The question remained as to what was to take the place of the fractional notes. Since 1890, there had been 1,000,000 yen inserted in the annual budget, to be devoted to the production of small silver coins, with which they were to be redeemed.

In 1890, the interest of two per cent. on the money borrowed from the central bank was remitted, and the limit of the Bank’s note issue was extended to 85,000,000 yen. The loan of 22,000,000 yen was added to the already existing redemption fund of 10,000,000 yen, and from these a separate fund was formed, to be devoted solely to the redemption of paper money. The way redemption is effected is very simple. The fund is placed in the keeping of the Bank of Japan, which redeems on demand, and afterward sends an account to the Treasury.

Thus the whole scheme has culminated in the assimilation of Government paper money and bank notes, by making them convertible into silver or into the notes of the Bank of Japan, which keeps a substantial metallic reserve, and the notes of which only will, in the course of time, remain in circulation. The once chaotic, deranged, and deteriorated paper currency has thus been simplified and restored in value, expanding or contracting according to the amount of reserve, and to the real necessities of the money market. The goal of monetary legislation was at last reached, benefiting the Government and the people as well. In order to show the percentage of the metallic reserve, and the gradual absorption of other paper money into the Bank of Japan notes, the following tables are inserted:

THE NOTES NOW IN USE.

It is clear, from what has been just said, that the chief factor of the paper currency is the convertible notes issued by the Bank of Japan; the Government paper and the national bank notes being gradually redeemed, only a little over 10,000,000 yen of the former and 20,000,000 yen of the latter remaining. These latter having been longer in use, are more or less disfigured and are not so much liked by the public as the notes of the central bank. But owing to the simplicity of the design of the note of the central bank, its imitation became frequent, illiterate persons being cheated thereby. The origin of this imitation is not without interest. At first someone made an imitation for the use of children. The penalty for counterfeiting provided by the penal code being inapplicable, this imitation became very elaborate, in some cases approaching the true note, only the letters and characters were intentionally changed. Gamblers used them in piles to attract by-standers and tempt them to join the game. Peddlers began to use them, and shops open at night often received them. Those discovered were mostly Bank of Japan notes, the imitations of the Government and national bank notes being very few. The audacity of imitators went so far as to apply their methods to Government bonds. Spurious copies of these can be easily discovered by ordinary men who can read. But fearing that it might impair the circulation of these credit instruments, a law was passed in 1895 to put an end to such practices. By this law the manufacture of or dealing in imitations of metallic or paper money, whether issued by the Government or banks of issue, as well as imitations of national or local debt bonds, are forbidden, under penalty of imprisonment from one month to three years, with an additional fine of from five to fifteen yen. If such articles be discovered by the police or examiners at banks, etc., they must be mutilated. This enactment seems to have had an effect, and less is now heard of this silly form of mischief.

The small paper currency is not liked and is becoming less year by year as its redemption goes on. So, now we have a sound system of convertible paper currency, and are free from the confusion and uncertainty which prevailed before. Indeed, the credit of the Bank of Japan notes is so high that they have never been at a discount, and they are preferred to silver yen in the daily transactions of the people.

CHAPTER V.

THE FUTURE MONEY STANDARD.

LOOKING TO THE GOLD BASIS.

THE unsolved part of the currency problem is the question of the legal standard. The standard fixed in the original Coinage Act is that of gold. But the issue of silver yen and the conversion of the Government and the bank notes into silver have made a gold standard merely nominal. Thus, practically, Japan is at present one of the silver-using countries. Consequently, the fall of silver affects her financially and commercially. How her payments for the purchase of men-of-war, for instance, from gold-standard countries are affected may be seen from the following table:

The increase of the burden was felt by the Government. The fall of silver advanced the prices of exportable goods—among others, rice; but the advance in rice means the general enhancement of prices, as already mentioned. The nominal amount of the exports also increased; so that both the internal and external trade was affected. By 1893, the fall of the yen, measured by pounds, francs, and dollars, became excessive, as shown on the following page.

THE IMPERIAL STANDARD COMMISSION.

Urged by these considerations, the Imperial Commission to investigate the causes and effects of the fluctuation of silver as well as the question of what is the best standard for Japan, was appointed in September, 1893. The names of the members are as follows:

Viscount Tani Takeki, chairman of the Commission and member of the House of Lords.

Mr. Tajiri Inajiro (now Baron), deputy chairman of the Commission and Vice-Minister of Finance.

Mr. Hayakawa Senhichiro, secretary of the Commission and private secretary to the Minister of Finance.

Mr. Wakamiya Seion, ex-director of the Bureau of Commerce and Industry in the Department of Agriculture and Commerce.

Mr. Hara Kei, ex-director of the Bureau of Commerce, and now the Vice-Minister in the Department of Foreign Affairs.

Mr. Wadagaki Kenzo, professor in the Imperial University.

*Mr. Sakatani Yoshiro, accountant and counsellor in the Department of Finance.

*Mr. Soyeda Juichi, secretary and counsellor in the Department of Finance.

*Mr. Kanai Nobu, professor in the Imperial University.

Mr. Kawada Koichiro (now Baron), president of the Bank of Japan.

Viscount Hotta Seiyo, member of the House of Lords.

Mr. Obata Tokujiro, member of the House of Lords.

Mr. Watanabe Jin Kichi, member of the House of Lords.

*Mr. Sonada Kokichi, president of the Yokohama Specie Bank.

Mr. Shibusawa Eiichi, president of the First National Bank.

Mr. Masuda Takashi, manager of the Mitsui Bussan Kuaisha.

Mr. Shoda Heigoro, manager of the Mitsui Bishi Firm.

*Mr. Taguchi Ukichi, editor of the “Tokio Economic Journal” and member of the House of Commons.

Mr. Watamabe Hiromoto, late member of the House of Commons.

Mr. Kawashima Jun, member of the House of Commons.

Mr. Maki Bokushin, late member of the House of Commons.

Mr. Kurihara Rioichi, member of the House of Commons.

Mr. Takata Sanaye, member of the House of Commons.

Thus in the Commission was included members of the Diet, financiers, economists, bankers, and other influential men of business. The first meeting was held in October, 1893, and a select committee of five to investigate the causes and effects of the fluctuation of silver was appointed out of those marked by an asterisk (*) in the above list. They held thirty-seven meetings within eighteen months, collecting much valuable material. Opinions were divided, one party holding the fall of silver to be beneficial, while the other deemed the benefit temporary and mixed with many evils. The former view was in the majority of three against two; and it was so reported to the general meeting in March, 1895, when the select committee to decide the best standard was elected, Messrs. Masuda, Watamabe, and Hiromoto being added to the five already chosen. This select committee, after holding four meetings, reported in May. Every one differed on this most important and practical question.

Mr. Sakatani insisted that gold should be adopted as soon as possible. Mr. Soyeda’s view was, though the aim must be directed toward gold, the present is not the time for change, but for preparation. Professor Kanai had hope of the formation of an international bimetallic league, and advised joining it when formed. Mr. Watamabe urged the necessity of accumulating gold, because the time will come when gold is to be made the standard. Mr. Sonada stuck to the maintenance of the statu quo. Mr. Masuda wanted to wait till the mind of the other countries is made up. Mr. Taguchi desired to take the lead in the formation of a bimetallic league among advanced nations.

THE COMMISSION’S SUMMING UP.

In fact, the gold party was in a majority; but all were against any sudden change except one member. In May, the matter was brought up at the general meeting, and after four days of heated discussion the final resolution was taken. The causes of the depreciation of the white metal were declared to be: 1. The increase of production. 2. A decrease in the cost of production. 3. A comparatively slow increase of the demand for silver. 4. A decrease of the industrial use of silver. 5. The effect of increased production is concentrated on a very small portion of the stock of silver, such as bullion and full-quality silver coins, thus making the result more telling. 6. The production of gold is less, compared with the ever-increasing supply of silver. 7. The increase of the use of gold for coinage. 8. The increase of the industrial use of gold. 9. The increase of the tendency to hoard gold.

The effects of the depreciation on silver-using countries were thus enumerated: 1. Increase in the silver value of exports. 2. Rise of prices. 3. Profits for debtors and tax-payers. 4. Advantages reaped by agriculturists. 5. Industrial and commercial prosperity. 6. Increase of the revenues of the State. 7. Increase of the demand for labor. 8. Increase of the expenditures. 9. Suffering of wage-earners, etc. 10. Losses for creditors. 11. Rise of speculative undertakings. 12. Increase of goods imported from gold-using countries.

The effects on gold-using countries were summed up thus: 1. Advantage of creditors. 2. Fall of prices of goods imported from silver-using countries. 3. Decrease of expenditures of the State. 4. Fall of prices. 5. Loss felt by debtors and tax-payers. 6. Depressed state of industry and commerce. 7. Fall of the rate of interest. 8. Suffering of the agricultural class. 9. Decrease of revenues. 10. Loss of those who pay wages, salaries, etc. 11. Decreased demand for labor. 12. Increase of importation from silver countries.

Those affecting both countries were divided into two. 1. Hindrances to commercial transactions between gold and silver countries. 2. Withdrawal of capital invested by gold countries from those using silver.

The effects on Japan were concluded to be as follows: 1. Increase of exports. 2. Rise of prices and suffering of wage-earners. 3. Profit for debtors and tax-payers, and consequent loss by creditors. 4. Prosperity of commerce, industry, and agriculture. 5. Increase of revenues and expenditures. 6. Increased demand for labor. 7. Prevalence of the speculative spirit and luxury. 8. Rise of prices of goods imported from gold countries. 9. Opening of the mint absorbing redundant silver. 10. Trade with gold countries hindered and capital withdrawn by them.

The effects were deemed beneficial by ten against five members. When the final question on the best standard was put, the strife increased. On the first question, “Are we to change the standard?” there were eight affirmative against seven negative votes. Then, “What should be the standard?” was asked, and six upheld gold, while two stood for the double standard. The report of the committee was presented to the Government in July, and it is not known how far the report will be adopted. So, the question is still left unsolved.

REASONS FOR THE GOLD STANDARD.

The Author believes gold monometallism to be the best system, for the reasons following: 1. To serve as a measure of value, the standard must be single and simple. This is almost self-evident when we consider that two different measures of length cannot be in use at the same time. Bimetallism is therefore erroneous in theory, besides being difficult to carry out in practice, owing to the impossibility of international agreement.

2. That which forms the standard must be the thing which varies the least, and if it varies, the tendency must be on the side of appreciation. Gold is steadier in production, and its demand will never fall off so long as the human taste is not revolutionized. Some try to prove the steadiness of the value of silver by showing that the prices of commodities in silver countries are more steady than those in gold countries. Nothing is so futile or misleading as this. If a seller of an iron rod were to use an India-rubber measure, who would not laugh at the absurdity? But to try to prove the rise or fall of gold by the ever-changing prices of goods is almost similar to such an example. In order to judge of the fluctuations of silver or gold, we must be guided by the inevitable law of demand and supply. Supposing that the fault lies with the appreciation of gold while the value of the goods remained steady, why should not every commodity fall in price in equal proportion? Indeed, what the economic law indicates is the great fall of silver and the relatively small rise of gold. If so, the variation is less with the latter, and is on the side of appreciation. So long as cheap prices are a blessing to consumers—to which category even manufacturers belong—and therefore to mankind in general, the inflationists’ view must be erroneous, and we must prefer gold to silver.

3. It is futile to attempt to change the human taste or likings by law, or to fix prices of things by international agreement or other artificial device, as has been repeatedly proved by the failure of monetary conferences and the suspension of the working of the Latin Union. Every time we hear of monetary conferences, exchange is disturbed, but no actual result is attained. It is far better to leave the matter to itself than to swell the gains of speculators and mine-owners at the expense of the general public. Some speak of the scarcity of gold and the overproduction of silver, but of late years the production of gold has increased, while that of silver is decreasing. Moreover, credit instruments will fill up the deficiency of gold among civilized nations, and the gradual progress by less advanced countries will increase the use of silver. Even in gold-standard countries, the increased use of silver as token money will make room for the redundant silver. Some commend the compensatory action of the bimetallic standard. This may exist to some extent, but in the double standard the small fluctuations frequently occur in ripples, while in the single one the undulation, though great, is extended over a long period, making the effect almost unfelt, as in the case of ocean waves.

4. The standard must conform to the necessities of the country in which it is applied. For uncivilized nations, shells and hides may do; but as we advance, something better, such as silver, becomes necessary. As the unit of prices rises by still higher advance toward civilization, silver becomes too heavy, and something which embodies more value in less volume is needed. This need is best satisfied by gold. Therefore, for the advanced nations, gold must be made the standard by the very necessities of daily life, while for backward countries silver will be more suitable.

Turning now to the case of Japan, she will before long reach the stage when gold becomes necessary by: 1. A rise of the unit of value. 2. An increase of transactions. 3. Becoming a creditor country. 4. Importing raw material and exporting manufactured goods. 5. Increase of commercial relations with gold-using countries. But at present it is premature to adopt the gold standard at once. Therefore, making gold the object, we must be simply contented just now with such preparations as: 1. The stoppage or limitation of the free coinage of silver. 2. Coining mostly gold. 3. Accumulating gold by increased exports and production. 4. Buying up the output of neighboring gold mines. 5. Collecting customs duties in gold. 6. Giving preference to those who pay in gold. 7. Placing the national debt bonds in the market of gold countries. 8. Converting and retiring all paper notes below five yen and increasing the specie basis in gold.

Another important question is the manipulation of the indemnity fund. This is a question which may affect the world at large, and, therefore, its treatment cannot be disregarded by commercial countries. However, so far as the Author can see, there is no cause for anxiety, because the Japanese financiers will do their best not to disturb the exchange market. They will act with caution and circumspection in the transmission or disbursement of the fund, which was received in gold to the amount of £13,160,392 3s. 5d., and was all deposited in the Bank of England. In case the Japanese finances were strained, as some superficial observers used to announce, there might be a risk of precipitate action. But just the contrary being the case, and the financial strength of the country being far greater than expected even by her financiers themselves, the rest of the world has less to fear from the mode of handling the fund. If by the late war the military and naval strength of Japan were vindicated, the skill and development of her financering must at the same time be acknowledged. After being engaged in an enterprise involving the sending across the sea of more than 300,000 men, and keeping them there for a period of a year and a half, it is nothing short of marvelous that the national finances should have been kept free from all disturbance.

CONCLUSION.

Not only in its banking and currency, but almost in all other respects, Japan was far behind the so-called civilized nations, having long been kept down by the iron rule of feudalism. Things went on smoothly enough so long as the organization of society was simple and homogeneous. But as it became more complex and active, as the comparatively recent decay of feudalism set in, there was an outbreak of confusion and turmoil. In the Restoration a new era dawned, but still the turbulent condition lasted, being intensified by crude and vague ideas of things European. At last, after a great many failures and miscarriages, the so-called “best out of every country” policy bore a fruit peculiar to Japan. A banking system was firmly established, and the currency was made stable and trustworthy, equal to those of the highly civilized countries. Success, however, was won only after a series of struggles and contentions. Those who do not know how much latent energy existed before the opening up of the country may say “these are all apish imitations.” But a moment’s reflection and a glance at what has been described may raise the question whether so much can be achieved by imitations only. There must be a strong digestive and assimilating power at least, for the attainment of reforms and improvements of such amplitude. If, therefore, Japan cannot expect the world to admire her or learn from her, she has at least a right to be investigated more and known better, instead of being slighted and despised, and even subjected to extreme contempt, as was the case before her success in the war with “the Sick Man of the Far East.” She has sent men over to Europe to investigate and study the best of everything practically and theoretically. From her university many able and active young men come out every year and enter public and private service. Not only in material sciences, but in politics, law, economics, and public finance, the newest theories are carried into practice. For those who are not prejudiced, Japan is thus the best place for investigating the practical working of economic theories. Moreover, the rapidity of the progress which she has made increases the interest which she offers to scientific observers.

If what has been herein described can arouse a sense of interest in the minds of impartial investigators, the Author will be amply satisfied, even if he fails to secure the attention of the general public in the New and the Old World.

APPENDICES.

Appendix A.

Exports and Imports of Merchandise.

Appendix B.

Exports and Imports of Specie.

Appendix C.

Prices of Government Bonds.

Appendix D.

National Debt in Japan.

(From the “British Economic Association Journal” of June, 1895.)

I. The Origin of the National Debt.—The sudden change from a long-established feudalism to a unified form of the State at the beginning of the Meiji era called forth many extensive and resolute political and financial schemes. Among others, the surrender, or rather the restoration to the Emperor, of their possessions by the feudal lords (Daimios) made it necessary to remunerate them for their patriotic sacrifice. Also, vassals who formerly depended upon their lords had to be supported by the State. For this purpose each Daimio and his vassals received bonds which were computed according to their former income. Previous to this drastic reform, bonds were given to those who gave up privileges and were in need of capital. The amount was computed in the case of perpetual hereditary pensions at half of six years’ pension, and in the case of life pensions at half of four years, the moiety being paid in cash in both cases. Thus the feudal pensioners became holders of the public bonds.

In addition to this, the debts of the feudal lords were converted into State liabilities, and the abolition of Riu Kiu viceroy, the confiscation of temple lands, etc., increased the burden of the State, and the amount of bonds issued rose to:

In order to get the fund with which to pay feudal lords and vassals who surrendered their pensions, and to meet other necessary expenses, the so-called Seven per cent. Sterling Loan was raised in England, in 1872, to the amount of £2,400,000 sterling, or 11,712,000 yen (£1 being the equivalent to 4.88 yen). The actual sum received was £2,220,000 sterling, the issue price being 92.5 for 100, though the subscription reached to £9,500,000. The principal of this loan was to be paid by drawings in twenty-five years, so that it will be wholly redeemed in 1897, and the interest was seven per cent., to be paid half-yearly. Though it is not now quoted highly in the London market on account of the approach of the final redemption, it stood as high as £118 12s. in 1888; and it is well known that the punctuality of the payment of both the principal and the interest of the bond gave satisfaction to its holders. So much for the increase of the debt necessitated by the abolition of the feudal system. We now pass to the debt called forth by financial necessities.

In the early days of the Restoration, the paper money issued by the Imperial Government did not obtain popular confidence, and was at a discount for a long time. Consequently, in 1869 the maximum amount of issue was fixed at 32,500,000 yen, and a decree was promulgated to convert the paper notes into the new coins by 1871, and the amount not converted was to bear six per cent. interest. But the Government was unable to carry out the promise of redemption when the time matured, on account of the increase of expenditure, the difficulty of finding out the possessors, etc. Hence, in 1871, it was enacted that the owner of paper (notes) could have it converted into six per cent interest bonds if he liked. But the bond thus given in exchange was registered, and its negotiation was inconvenient. By an act issued in 1883, the bonds were changed into unregistered bonds to the amount of 7,929,900 yen. This scheme, as well as the retrenchment in the expenditure, was effective, and the value of paper notes gradually restored till it stood at par with silver.

Then we come to debts raised for economical improvement. Among others, we must count the Nine per cent. Sterling Loan, the first loan raised abroad for the purpose of developing the national resources by facilitating the means of communication. This was raised in London, in 1869, through the hand of the Oriental Bank Corporation, to the amount of £1,000,000, or 4,800,000 yen (£1=4.88 yen), at nine per cent. interest, it being already redeemed in 1882. With the proceeds of this loan the first railway—viz., the Tokio and Yokohama line—was constructed.

After this, various loans were raised for the improvement of the means of transportation, especially for the construction of railways, the amount being:

We must not forget to mention the debt incurred during the civil war of 1877, to the amount of 15,000,000 yen at five per cent. (now 100,000,000 at seven and one-half per cent.), from the Fifteenth National Bank; the Navy Loan, issued to the amount of 17,000,000 yen, for the purpose of strengthening the naval force, and the 22,000,000 yen non-interest-bearing fund for the conversion of paper money into silver, borrowed from the Nippon Ginko, or the Bank of Japan. Besides, there are the Consolidation Loan and the new War Loan. But these will be described in separate sections.

Although there are floating debts in the form of Treasury bills issued in each fiscal year to meet temporary necessities, these are to be redeemed within the year of issue, and the total amount is fixed in the budget. Hence, they do not occupy an important space in the stock exchange.

Thus it is evident that most of the loans were raised either by urgent political and financial necessity, or for productive purposes; hence, the Japanese debt, unlike so many others, was not raised in order to delay the financial embarrassment caused by continual deficit.

II. The Consolidation Loan.—The debts hitherto mentioned differed not only in the management and redemption, but in the rate of interest. Moreover, by the development of credit organizations and the general economy, the rate of interest began to fall, and the rate, which oscillated between twelve and eight per cent. before, descended to seven per cent. in 1886. At the same time, the price of bonds gradually rose; for instance, six per cent hereditary bonds, which stood at 64.753 yen in 1881, rose to 105.181 yen in 1886. Hence, the time became ripe for the conversion of the debt, and in 1886 the celebrated drastic law called the Consolidation of the Public Loan Act was issued, to convert all debts above six per cent. interest, and to consolidate the various loans issued under different regulations. The main features of this act are:

1. The total amount of the issue to be limited to 175,000,000 yen.

2. The rate of interest of the loan to be five per cent. per annum, payable half-yearly, in June and December.

3. The bonds issued to be unregistered, bearing coupons, but convertible into registered bonds at the option of holders.

4. The bonds to be of five denominations; namely, 5000 yen, 1000 yen, 500 yen, 100 yen, and 50 yen.

5. The principal to be redeemed by lot within fifty years, counting from the sixth year after the issue.

6. Drawing for redemption to take place at the Nippon Ginko, the amount of the bonds so drawn being advertised in the official gazette.

7. The payment of the principal or interest not to be allowed after the lapse of full fifteen or five years respectively from the month of payment.

8. Application for the issue of new bond or coupon to be made to the Nippon Ginko, its branch offices, or agencies, when it is lost, defaced, destroyed, or mutilated.

9. Application signed by both transferor and transferee to be made to the Nippon Ginko, its branch offices or agencies, when registered bond is sold or otherwise transferred, etc.

The amounts actually issued of this loan were:

In this way, various debts above six per cent. interest were converted to the amount of 166,482,450 yen; and the kinds of debt still remaining are nine, as shown below:

III. The New War Loan.—The outbreak of the war with China forced upon the country an enormous expenditure. This is inevitable when a country is engaged in an extensive war beyond its border, and especially across the sea. In order to meet the necessity, the new War Loan was raised to the amount of 150,000,000 yen at five per cent in 1894, and to this 100,000,000 more were added in 1895. The first loan was called twice—viz., in August and December of 1894, respectively.

The first call was for 30,000,000, and the minimum price of subscription was fixed at par. But the subscribed amount reached 77,002,650 yen, or 47,002,650 yen above the sum needed, and of this 11,627,850 were above par, and some were as high as 142.44 for 100 yen. At the second call the amount was 50,000,000 and the minimum price was 95 for 100 yen. This unfavorable condition of issue was necessitated by the state of the money market, which is usually strained at the close of every year. But the subscription exceeded by the enormous sum of 40,274,750 yen, and some ranged as high as 120 yen. It is to be observed that among the subscribers were foreigners residing in Tokio and Yokohama. If the war continues, the Government can still issue 170,000,000 yen, and the nation is ready to meet the call. Although there are rumors founded on expectations that at least a part of the remainder may be borrowed abroad, the desire of the people at large rather inclines to the internal loan. The reasons alleged on their side are that the financial strength of the country is more than we expected; that the state of the money market is not strained, as it was predicted; that there are money returns from the seat of war and from the purchase of goods at home; and, lastly, that we must fight not only with our soldiers, but with our money. But the strongest reason is that if we borrow in gold from gold-standard countries, which seems the natural course, the probability of future losses through the fall of silver deters us from offering a higher rate than three per cent., at which it may perhaps be difficult to find a lender.

IV. Summary.—From what has been stated, the condition of the credit of our country must appear satisfactory even to a staunch pessimist. Especially when we survey the result of the war, the War Loan, which is quite a new-born child, can be safely made the object of investment not only for our countrymen, but for the foreign capitalist, especially as it is now quoted very low in the stock exchange. But if this loan is not acceptable on account of its being not yet fully paid up, the Consolidated Loan is the best way of investing the foreign capital. In this way the superfluous capital in Europe and America can get a comparatively high rate of interest, and our country can reap the benefit thereby without undergoing the troublesome task of issuing a foreign loan and being opposed by the patriotic cry: “Why not let us fight with our own money!”

According to the budget estimate for the financial year 1895-96, the total amount of national debt raised by the Imperial Government during the interval between 1872 and May of 1894, rises to 502,371,900 yen. But 237,599,224 yen of the debt were redeemed till the latter period, and thus we get the sum of 264,772,676 yen. To this we must add 80,000,000 yen of the new War Loan, and deduct from it 219,844.50 yen of old debt redeemed in December, 1894; hence, the existing national debt stands at 344,453,221.50 yen, a burden not too heavy for a country like Japan. In the same budget the sum to be paid out as the capital and interest of the national debt is estimated at 24,344,575.438 yen, and this, compared with the total revenue of 90,300,709.453 yen, is only 26.95 per cent. of the latter. When we consider that there are countries which pay more than half of their revenue as the interest of their debt, while only 16,016,683.026 yen, that is to say, only 17.73 per cent. of the revenue, is paid as the interest by Japan, the discrepancy becomes wider, and the fact that the credit of the latter country has been hitherto too lowly estimated by the world at large becomes more evident.

Banking, Currency and

Land Tenure

in

THE CHINESE EMPIRE.

AN ESSAY

by

Hon. THOMAS R. JERNIGAN,

united states consul-general at shanghai.

new york.

1896.

BANKING, CURRENCY AND LAND TENURE IN THE CHINESE EMPIRE.

[* ] Twenty-four sho are equal to nearly one American gallon; mon same as rin, or one-tenth of a cent.

[* ] These were coined by the Ming dynasty of China in 1411 ad

[* ] Quan is equal to 57870 troy grammes.

[* ] This was a practice of Buddhism, and was intended to enable the dead to pay their traveling expenses to their final abode.

[* ] Then revenue was calculated in the rice-measure of koku.

[* ] A policy had been adopted of encouraging industry by lending out money to manufacturers and setting up typical factories. Both, however, ended in failures; of the money lent, 23,000,000 out of a total reserve of 52,000,000, was mostly irreclaimable.