As to the national banking system, some changes are made, not likely to have wide-reaching consequences as they stand, but significant of a disposition to welcome and indeed to promote an extension of this form of paper money. Hitherto, banks have been allowed to issue notes only up to 90 per cent. of the par value of the government bonds deposited by them as security for the notes. They may hereafter issue notes up to the full par value of such bonds. The tax on their circulation is reduced from 1 per cent. a year to of 1 per cent. for such banks as deposit the new 2 per cent. bonds authorised by the Act, of which something will be said presently. Small banks, with a capital of $25,000, are permitted in places having a population of 3,000 or less,—a provision of very doubtful expediency, inserted with the hope, probably vain, of securing that the agricultural regions of the west and south should be permeated with the facilities of the national banks. Some provision for the refunding of parts of the national debt is made in the Act. Certain outstanding bonds, bearing interest at the rates of 3, 4, and 5 per cent., may be exchanged for 2 per cent. bonds; the holders receiving, as inducement to make this exchange, a cash bonus which is calculated on the basis of their receiving net on their present investment 24 per cent. This refunding operation serves a double purpose. It gets rid of some of the cash which has accumulated in the general fund of the Treasury, in consequence of the more than ample provisions in the Revenue Acts of 1897 and 1898. On the other hand, it enables banks to secure as a basis for their note issue a 2 per cent. security, which can be bought without paying a premium in the market. The bonds now outstanding at 3, 4 and 5 per cent., and subject to exchange under the new Act, command a premium. Hence, as matters stood before this Act, a national bank which wished to secure bonds as a basis for circulation had to lock up some of its capital in premium, and yet could issue notes only up to the face value of the securities purchased. While the process of exchange for the new 2 per cent. bonds is open to all holders of the outstanding securities, it has been utilised hitherto by the national banks only, and indeed is designed mainly to ease for them the conditions of circulation. It has already been noted that the banks which secure these 2 per cent. bonds by exchange will have the tax on their circulation reduced from 1 per cent. to of 1 per cent. Notwithstanding these alleviations, it is improbable that any large extension of the national bank circulation. will take place. Some immediate expansion has indeed appeared, from the privilege of issuing notes up to the face value of bonds instead of 90 per cent. of their face value. But the requirement of investing in a 2 per cent. security as a basis for issue remains, and restricts the possible profit on circulation so narrowly that no considerable expansion of the note issues of the banks is to be looked for. The ideal of those who have advocated thoroughgoing currency reform in the United States has been the complete abolition of the legal tender notes and the substitution for them of well secured, unfailingly redeemed and elastic bank notes. Toward the consummation of such a reform the new Act makes no considerable advance. An effective machinery, although a cumbrous one, is indeed provided for the deliberate redemption of the government paper. Some steps are taken toward easing the conditions of issue for the national banks. But the reorganisation of the Treasury offers temptations, and invites attacks, while the remodelling of the national banking legislation makes possible no considerable expansion. In the main, the paper money of the United States is thus left still encased in a strait-jacket. The United States notes are rigid in quantity, and the national bank-notes, to all intents and purposes, are not permitted to expand. The silver currency, when once the conversion of Treasury notes has been carried out, will be as rigid as the government paper. Thus a future growth of the currency, such as must be expected with the great and rapid growth of industry and population, can take place only by an additional supply of gold from domestic mines or by importation. Such a state of things is extremely unlikely to endure permanently; and sooner or later,-doubtless not in the immediate future, but in the course of the next decade or two,-further legislation both on the legal tender paper and on the national bank notes may be looked for. F. W. TAUSSIG REPORT ON THE ADOPTION OF THE GOLD STANDARD IN JAPAN By COUNT MATSUKATA MASAYOSHI, H.I.J.M.'s Minister of Finance1 THE Preface is an accompanying letter addressed by Count Matsukata to the Prime Minister on presenting this Report; it gives a clear bird's-eye view of the financial reforms accomplished mainly under his direction. The Report itself is a minute narrative of all the currency chaos experienced by the Empire of Japan since the Revolution of 1868, and of the untiring efforts at reconstruction by the Imperial Government until the quicksand of inconvertible paper which existed in 1880 was transformed into the solid ground of gold convertibility in 1897, when Japan was restored "to its original position of a gold standard country" (p. 176). The book is a specimen of Japanese thoroughness and industry, exhibiting the same love of accuracy which is shown in their curios. Only scholars can imagine the labour of reprinting this Report in English, a work carried out, not by English-speaking employés hired for the purpose, but by the officials of the Japanese Treasury. 1 Printed at the Government Press, Tokio, 1899 (pp. xv-389). English Edition. 2 The lion's share of this work, as well as of the complicated tasks involved in the transition to gold standard, was ably borne by the brilliant correspondent of the ECONOMIC JOURNAL, Mr. Jiuchi Soyeda, Secretary of the Treasury, then ViceMinister of Finance (1898), now President of the new Bank of Formosa. It will be remembered that when Japan was forced open by the U.S. Government in 1853-4, they found a curious state of things; the real Emperor (Mikado) for centuries had been compelled to live "in gilded captivity" at the old capital Kyōto, while the Empire (parcelled out among 270 feudatory chiefs) was actually governed by a military despotism centralised under a supreme Shōgun, whose capital city was Yedo, now called Tokyo. Ever since 1603 the office of Shogun (or Taikun) had been monopolised by the great family. of Tokugawa. On the assumption of supreme power by Iemitsu, the third of these Tokugawa Shōguns, he, intent on preserving the independence of his country, enacted certain downright measures. Christianity (introduced 90 years previously by the Portuguese and Spanish priests) was stamped out, all foreigners expelled except a handful of Dutch who were allowed to remain on a small mud flat in Nagasaki harbour, and no communication with the outside world. permitted except at this solitary spot. It was forbidden to build ships of over 80 tons, in order that nothing beyond coasting trade should be possible. Thus for 250 years Japan existed in isolation from other parts of the planet. [One consequence of this was that when foreigners began to be re-admitted in 1855 they found gold rated at 8:1 of silver, and the earlier arrivals took such prompt advantage of this discrepancy from the ratio prevailing outside that in a few years Japan was almost stripped of her gold coin and bullion (p. 179)]. Long before the United States expedition appeared there had been growing up a "national" party opposed to the Shogunate, desiring (for purposes of their own) to restore the Mikado to his rightful position; and the arrival of Perry's steamships merely precipitated a revolution already nearly ripe. From 1853 to 1868 the country was torn asunder by the conflicting policies of the two parties; at last, in 1868, the Tokugawa faction were finally overwhelmed, the Mikado— in the person of the present Emperor-once more established in supreme sovereignty, and the independence of Japan assured. Count Matsukata's book starts with this memorable year 1868, and describes the currency troubles of Japan from that date until the adoption of the gold standard in 1897. The new Imperial Government found "the currency system of the country in a most disordered condition. Nominally no change had been introduced since 1600 (the money consisted of gold and silver coins, at fluctuating ratios); yet owing to financial distress the Shogunate frequently resorted to re-coinage as its relief measure, which in every case. . . brought out coins of lighter weight and poorer quality. Besides, some of the 270 feudal princes often took the liberty of secretly coining money, while the practice of issuing paper money for circulation within their respective jurisdictions had become well-nigh universal" (there were 1600 varieties of this Han paper). Meanwhile the newly-admitted foreigners after 1855 lost no time in removing most of the Japanese gold money to a part of the globe where it was more highly appreciated. Therefore, in April, 1868, "while the Revolutionary wars were yet going on, a plan of re-coinage was drawn up and adopted." In November 1869 it was decided to have silver monometallism, with coins on the metrical system, gold to be subsidiary legal tender up to 100 yen (£20). In November 1870 the new mint at Osaka began coining silver. Just then Mr. Ito (now Marquis), Vice-Minister of Finance, who was travelling in the United States, sent home a Memorandum urging his Government to establish gold monometallism. In consequence "the Government decided to adopt at once the gold standard, and issued the New Coinage Regulations on May 10, 1871.” According to these regulations, gold was made unlimited legal tender, and small silver coins up to 10 yen (£2). As, however, "the silver Mexican dollar was at that time universally used in the commerce of the Far East," the Government coined a special 1-yen silver piece of equal value which was declared legal tender to any amount at the Treaty Ports only. But all large trade being concentrated at the Treaty Ports, silver soon became the money of Japan for practical purposes. Meanwhile, to anticipate the narrative, Government was forced to make successive issues of paper money, and gold being both driven out of the country and hoarded, the gold monometallism could not be maintained. Hence, in 1878, Mr. (now Count) Okuma, Finance Minister, advised that the silver yen should be made legal tender everywhere in Japan. This being done, in May 1878 Japan became a bimetallic country, and continued so in name until 1897.1 "This change," says Count Matsukata, "must be regarded as the one deviating step in the development of our monetary system" (p. ii.). 66 To return to 1868. The new Government, burdened with war expenses and with vast schemes of transformation in hand, yet with scarcely any fixed source of revenue to rely upon," began to issue paper money, partly to supply a deficit in the revenue, and partly to develop industry, by offering loans of this paper to local bodies, farmers, and merchants (to be repaid in 13 years). By the end of 1869 there were 48 million yen (£10,000,000) in circulation. This was followed by another issue (7 million yen) of very small denominations (down to 1d.) "to relieve the lack of small currency," and again in 1871 by an issue of 63 million yen, "to be exchanged for hoarded old gold coins," in order to re-coin these; in 1872 came a final issue of 2 million yen to defray the expenses of the Colonial Government in Yezo. All this paper was declared to be convertible in coin, at any rate on the expiry of 13 years. July, 1871, brought another complication; "the system of feudalism 1 From 1868 until January 1886 the currency was practically inconvertible paper (Government notes and notes of National Banks); from 1886 to 1897, it was really silver monometallism. which split up the country into hundreds of princedoms (called Han or Daimio) was abolished, and the centralised Imperial Administration ushered in." The Goverment was obliged to take over the paper money issued by the feudal princes; "not only were these of very crude workmanship, but of all shapes and kinds, there being 1600 varieties." Moreover, the paper already issued by the Government being likewise of inferior execution, and thus easily counterfeited, it was determined to supersede the whole, feudal and Imperial, by a new issue of better workmanship, to be made in Frankfurt. The old paper began to be surrendered for the new in February 1872, but the new paper was declared to be inconvertible. "Thus the entire paper currency of the country became inconvertible " (p. 23). The Japanese people had no great respect for any paper money, owing to the fact that the old feudal issues were sometimes "disowned by the Governments which issued them "; hence this new paper money, despite its "skilful workmanship," was "shunned by the people, even at a large discount." The Government had previously tried persuasion and threats to prevent depreciation, announcing in an Ordinance of May 1869, that any persons "who refuse to take paper money," or "who take premium in the exchange of paper with specie," should be fined in proportion to the magnitude of the guilt"-four-fifths of the fine to go as a bonus to anyone reporting the offence. In 1873 the Government issued exchange-bonds (Kinsatsu, lit., "gold paper ") bearing 6 per cent. interest, with a view to withdrawing the discredited paper, through the instrumentality of National Banks, now first authorised. Each bank was to pay into the Treasury paper-money equal to six-tenths of its capital, and was then credited with Kinsatsu bonds of the same amount, these bonds being held in the Treasury as security; the bank might issue its own notes to the extent of such bonds, and must keep the remaining four-tenths of its capital in specie as reserve for conversion. But specie being so scarce only four banks started, and they could issue only 4 million yen of notes, for there was such a rush to convert the notes that specie gave out, and the mechanism came to a stop. Thus very little of the discredited paper was retired in this way. "The Government now sought means of relief in another direction." The feudal princes and their retainers (Samurai), a population of two millions, had since 1871 been paid annual pensions of so much rice; in 1876 the Government compelled them to accept interest-bearing Pension Bonds in commutation (a few had done this voluntarily in 1874). Of these bonds 174 million yen (£35,000,000) were issued, and it was hoped that the Samurai would subscribe the bonds to form the capital of National Banks. "In this way the needy Samurai would obtain a livelihood, while the economic market would be supplied with much-needed capital in the form of bank-notes. It is needless to remark that these ideas were based on an erroneous notion that capital and currency are interchangeable terms." At the same time Revised |