Front Page Titles (by Subject) CHAPTER III.: THE PAPER CURRENCY. - A History of Banking in all the Leading Nations, vol. 4 (Germany, Austria-Hungary, Netherlands, Scandinavian Nations, Japan, China)
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CHAPTER III.: THE PAPER CURRENCY. - A History of Banking in all the Leading Nations, vol. 4 (Germany, Austria-Hungary, Netherlands, Scandinavian Nations, Japan, China) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 4 A History of Banking in all the Leading Nations, (Germany, Austria-Hungary, Netherlands, Scandinavian Nations, Japan, China).
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THE PAPER CURRENCY.
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:
[* ] Then revenue was calculated in the rice-measure of koku.