2266 CO^nVIEEOIAL JAPAIS". [Decembeb, 



IMatters were proj?ressing favorably when, in 1877 (tenth year of Meiji), a rebellion broke out in the southwestern provinces. The 

 Governuient was again obli<rcd to resort to the issuing of a large amount of inconvertible notes, which brought on an inflation and 

 consequi nt depreciation in the value of these notes. There was also another cause for this result, namely, the increase after 1876 of the 

 amount of national-bank notes, due to increa.se in the number of national banks (owing to certain amendments in the national-bank 

 regulation, which took place through Imperial ordinance No. CVI). The effect of this depreciation was felt in various directions; for 

 instance, prices rose rapidly, gold and silver left the country, the imports soon came to exceed the exports, the farmers contracted 

 habits of luxury, the industrial classes became over-excited with vain hopes of spec^ulation. Thus was brought about the great financial 

 distress of 1880-81. That disastrous results would inevitably follow if inconvertible paper money were made the standard of value 

 might have easily been foreseen by mere common sense, but the measures adopted by the Government at this crisis seemed to show 

 that th(! authorities did not grasp this simple truth. They regarded the difference in price between silver and paper as an indication, 

 not of tlie depreciation of paper, l)ut of the appreciation of silver. They attempted, therefore, to stop the rise of the price of silver by 

 increasing the amount of its circulation. The Government sold silver coins, opened places for the exchange of Mexican dollars, and 

 established the Yokohama Specie Bank in order to call forth the coins hoarded by the people. But the more the.se methods were 

 resorted to, so much more rose the price of silver. The Yokohama Specie Bank finally became almo.st bankrupt, and no one knew how 

 far the paper currency would go down in the scale of depreciation. 



At last, however, the true method of relieving the financial distress began to dawn on the minds of the men in authority. From 

 September, 1880, the (Jovernment began to take steps to redeem a part of the paper money in circulation. The depreciation, however; 

 still continued without a sign of abatement. It was at this crisis, in October, 1881, that I received the portfolio of finance. It occurred 

 to me, as I studied the case, that in order to effect the object in view the Government should, side by side with the redemption of a 

 portion of the paper money in circulation, take steps to increase the specie reserve of the Government yjreparatory to the resumption 

 of specie payment. IMoreover, in order to put the country's finance on a sound basis and relieve the pressing distress of the time, I 

 felt the need of a central bank having the sole privilege of issuing convertible notes. I suVjmitted a scheme for the estabfishment of 

 such a central bank to the consideration of my colleagues. In the cabinet council which followed my suggestions were ai)provefl, and in 

 June, 1882, by Imperial ordinance No. XXXII, the Nippon Ginko (Bank of Japan) was established. Two years later, in May, 1884, 

 by Imperial ordinance No. XVII, the Bank of Japan was empowered to issue convertible notes. After the necessary foundations were 

 in this way laid, the (jovernment used eveiy means in its power to raise on these foundations a sound financial superstructure. The 

 method of receiving and disbursing the Government revenue was changed, and the strictest economy was practiced in the expenditures 

 of the different dejjartments. One half of the surplus obtained in this way was devoted to the redemption of paper mone\-, while the 

 other lialf was added to the specie reserve of the Government. Besides, after the latter part of 1881 this reserve fund wa.s employed 

 for discounting foreign bills of exchange with a view to encourage the export trade of the country, which in its turn would lead to 

 the im))ortation of si)e(ie. Thus the Government took every possible measure, and left no stone unturned for the establishment of a 

 converti'ole-notes system. 



Thus took place f)n the one hand the gradual redemption of paper money, and on the other hand the increase of the specie re-serve 

 of the (iovernment, so tliat not long after, about the close of 1885, the credit of the Government rose so much that the difference between 

 the value of silver and that of paper almost disapj)eared. The opportune moment seemed now to have arrived to effect the substitution 

 of the convertible notes for the inconvertil)le. The Government therefore gave notice by Imperial ordinance No. XIV, of June, 1885, 

 that specie payment would be resumed after the 1st day of January, 1886. Thus at last was overthrown the system of inconvertible 

 paper money, together with all the evils resulting from that system. 



Previous to this the (iovernment saw that the notes of the national banks were also in need of adjustment, and through Imperiid 

 ordinance No. XIV, of May, 1883, certain amendments were introduced in the national-bank regulations, the main point in those 

 amendtnents being a method of conjoined redemption of the notes of all the banks. Thus the redemption of the bank notes l^egan to take 

 place, j'.s also that of the (jovernment paper money. ' The circulation of them both will cease altogether on the 31st of December, 1899. 



\\'hile the evils of inconvertible paper currency were thus swept away, on the other hand, however, one effect of all these reforms 

 was to njake Japan a de facto silver-standard country. This was, perhaps, an inevitable step the country had to take in arriving at last 

 upon a sound financial footing. The authorities knew, of course, that in order to give a healthy financial development Japan would 

 have to enter sooner or later the international economic community, and that in order to do this she would have to adopt a gold standard. 

 That the Government i>ursued a policy which led to the inevitable result of making Japan a de facto silver country was owing mainly 

 to the great difliculty of at once accumulating a large gold reserve necessary for the establishment of gold monometallism. It was thought 

 advisa])le, therefore, to leave the lattcsr, as the second end to be aimed at, to some more favorable time. 



The first cause of the recent rapi(l depreciation of silver we must attribute to Germany's adoption of a gold standard in 1873, in 

 coneecjuence of which she began to sell silver. Among other main cau.ses may be mentioned the limitation and final cessation of the 

 coining of silver in the countries of the Latin Union and the discovery of the rich silver mines of North America. When, however, 

 in 18!*.'>, India, the greatest silver country in Asia, took steps to reorganize her currency system, the sudden fall in the price of silver 

 was exceptionally noticeable. At that time Jaj-an, being a de facto silver country, the effect upon her of this sudden fall was very great. 

 Fluctuations in foreign exchange now became exceedingly frequent and unreliable. Business men lo.st a constant standard of value 

 and Ijecame comi)elle<l to pay constant attention to the changes in the money market, so that foreign trade tended to l^ecome largely a 

 matter of monetary spe(;ulation. It became more and more hopeless to expect to see the healthy growth of trade, both home and 

 foreign. Thus was impressed most clearly upon the minds of the financiers of the countrv the necessity of adoi)ting gold as the standard 

 coinagi; in Jajjan, that metal being least subjected to changes in its price and most fitted lor use as the medium of exchange. 



Tl'.e reform so necessary was, however, very difficult to undertake. Unexpectedly the reception of the Chinese indemnity seemed to 

 offer tl'.e desired opportunity. Now, according to the terms of the treaty of peace, Japan was to receive her indenuiity in Kuping taels. 

 It occ'irred to me then that, on ncconnt of the inconstam-y in the price of f^ilver, as well as in view of the possible adoption of a gold 

 standard by our country, it would be greatly to our advantage to receive the payment of the indemnity in British instead of Chinese 

 money. Thi; mini.ster j)resi(lent of state. Marquis Ito, acting on my suggestion, negotiated with the Chinese authorities, which led to 

 our receiving the indemnity money in pounds sterling. 



Not long after, on my api)ointinent to fill the jmst of the minister president of state, my efforts were immediately directed toward 

 making preparations for adopting the gold standard. In February, 1807, the bill for effecting the reform wasdrawii up. There was, 

 however, no little ())^po^ition. Some said tiie fall in the price of silver wouKl rather encourage trade with the gold-standard countriei', 

 while the adoption of ii gold standard by Japan would tend to decrea.'^e the amoinit of our export.'! to those cor.ntrii^. Others .««jd 

 Japan, t-iliiated as she was in the midst of the silver countries of the Fast, would be placed in a position of much di.sidvantjige in her 

 trade with these countries if shea<lo|ited gold monometallism. Some others said Jajan did not j^roducea sjifiicient amount of gold to be 

 able to maintain iH'imanently a gold-standard systi'm; yet again, others saitl thi- .•silver ven exported to foreign lands exccvdi-il one 

 hundred millions, and if all these coins came back for exchange, as might possibly i)e tlie case, the national treasury would have to 

 suffer an imnuMise 1os<j. In the midst of all these oppositions the (iovernment stood firm in its j)uri>ose, and the bill wa-* intro<lucod into 

 the Ini| ('rial Diet in March, 1807, which, after being pa.s«ed liy both hou.^es of the diet, was sanctioned by the Fmperorand promulgated 

 a.s law No. XVI on (he L'!)th day of the same month. It must be looked upon as a most fortunate event, consiilering the future of the 

 countrv's linanci' and the development of our national economy, that the gold standanl was thus finally estabiishtvl. 



For successfully (arryingont the radical change that was thus accomplished I beli<'ve that the (ioveriunent has been careful to take 

 every nece.><sary prt-caution. For instanci-, a jiart of the earlier installments of the indemnity was converted \u\o gold bullion and 

 conveyed to this country, to be minted as fa.'^t as p()s.>*ible into coins in the Government mint. In buying bullion much can^ wa« taken 

 to secure it in the time and ])lace most advantageous, .so that so large an amount of bullion was b'ouglit altog«'ther the proix'ss was 

 acconi(iliMhed without too great a disturbance of the market and without lo.-s to the Government. The gold thus turne<i into coins 

 between July, 1807, and April, 1S!)S, amounted to 74, -1.55, 7:55 ven, which was ke]it in n\eerve for the exchange of silver yen. The process 

 of exchanging was begun on the 1st of October, 1807, ami closed on the 31st of Julv, 1808. 



