2274 COMMEECIAL JAPA^. [December, 



The varioag plans for the redemption of inconvertible paper money having been faithfully carried out, on the last day of June, 

 1888, the amount in circulation was found to be much reduced, of the Government paper money there being in circulation some 49,337,247 

 yen and of the national-bank notes some 28,059,486 yen. The minister of finance, Mr. Matsukata (now count), seized this opportunity 

 for introducing amandmonts into the convertible bank-notes regulations in order to establish the currency system of the country on a 

 sound b:i--i.-!. The following memorandum was presented by him to the cabinet council in July of the same year: 



"While the Government issued paper money — notes issued by the Daijokwan — at the beginning of the restoration as an emergency 

 measure for the relief of the financial distress of the time, the disadvantages of issuing inconvertible notes was plainly seen at the time, 

 and hence the period of circulation of these notes was limited to thirteen years. It was hoped that after the expiration of this term of 

 years the Government would be aVjle to introduce a convertible system of paper currency. But the ever-increasing Government 

 expenditures— which were owing to the fact that every department of the Government as well as public enterprises of all kinds had to be 

 all at once either reformed or newly begun — compelled the Government to forego the first plan, and instead of redeeming the paper 

 money in circulation, they kept adding to that amount. In 1878 the depreciation of notes was so striking that the Government, getting 

 alarmed, made every effort to bring about the introduction of a convertible system. These efforts were now directed on the one hand 

 toward the contraction by making partial redemption of the amount in circulation, and on the other toward increasing the specie reserve 

 which was intended to serve as a fund for redemption. 



"O'.ving to these measures the price of paper returned to its face value, and, in June, 1885, the Government publicly notified its 

 determination, as has be;en previously stated, to begin the gradual redemption of the Government paper money. After this decisive 

 measure had lieen adoi)tcd, still further steps were taken in succession toward effecting the entire redemption of the Government paper 

 money ])y substituting for it the system of convertiljle bank notes. Yet, on the other hand, the amount of the paper money already 

 issued was so great that, notwithstanding every po.ssibie effort on the part of the Government, it has not yet been all redeemed. This 

 is indeed to be deeply regretted. Now, after careful examination of the methods and processes of the banking oper2,tions of Europe and 

 America, which may' possibly be taken as examples for our present case, I have come to the conclusion that to enlarge the privileges of 

 the Bank of Japan in regard to its power of issuing notes, and then to borrow a portion of its notes, at a low rate of interest or without 

 interest, and employ them for redeeming the Government paper money, would be, under the circumstances, the best possible method 

 that can be found. These reasons lead me to submit to the cabinet council for its careful consideration a draft of the amendments to be 

 introduced in the convertible bank-notes regulations, with a statement of reasons for these amendments, and some tables." 



(Note. — The at^ove-mentioncd statement of reasons and tables is now omitted.) 



'J'iie policy embodied in this memorandum being approved by the Government, the public was notified, through imperial ordinance 

 No. LIX, of August, 1888, of the introduction of amendments in the convertible bank-notes regulations. These amendments run as 

 follows: 



IMPERI.\L OUDIN.VNCE NO. LIX, OF THE IST DAY OF AUGUST, 1888. 



Article II. The Bank of Japan shall keep gold or silver coins, or bullion of those metals, as a conversion reserve, equal in amount 

 to the amount of tin; convertible bank notes Lssued. 



Tiio Bank of Japan may, outside the provisions of the preceding paragraph, further issue convertible bank'notes, on the security 

 of Government bonds or treasury bills, or other bonds and commercial bills of a reliaijle nature, within the limits of 70,000,000 yen. Of 

 this auDunt, however, 27,000,000 shall l)e set apart to be issued after the 1st day of January, 1889, in installment, from time to time, in 

 proportion to the amount of the national-bank notes redeemed. 



Tlie Bank of Japan may, outside of the provisions of the two preceding paragraphs, make still further an issue of convertible bank 

 notes, in order to meet some special emergency of the market, and with the special permission of the minister of finance, on the 

 security of Government bonds or treasury bills, or other bonds and commercial bills of a reliable nature. The notes shall Ije subject 

 to a spi'c.ial tax of not less than 5 per cent per annum, the rate of interest to be fixed in each case by the minister of finance. 



The Bank of Jai)aii shall supply by way of loan not more than 22,000,000 yen to the Government, at the interest of 2 per cent 

 per annum, for the purjjose of redeeming the Government paper money. The loan shall be without interest after 1898. The period of 

 time within which this loan shall be repaid by the Government and the rate of annual installment shall be fixed by the minister of 

 finance. * * * 



In ]\Tarch, 1890, the Government adopted the plan of setting apart as a redemption reserve a sum of 10,000,000 out of the reserve 

 fund in order to acconijilish the entire withdrawal of the Government paper money. * * * 



In these ways both the Government paper money and the national-bank notes were all exchanged with the convertible silver 

 notes of the Baidc of Japan. As a reiiilt of thus replacing the inconvertible paper money with the convertible silver notes, Japan now 

 became a de facto silver-standard country. * * * 



The report then details the methods adopted by the Government through additional taxation and otherwise for the creation of a 

 sinking fund and reserve fund, and adds: 



THE STATE OF AFFAIRS WHICH NECESSITATED THE COINAGE REFORM OF 1897. 



Tlie adjustment of the paper currency, accomplished in 1886, prepared the country to reap all the benefits of a scientific system of 

 coinage. Tiu^ rate of interest now gradually became low, the commercial and industrial enterprises began to rapidly expand, the volume 

 of foni.,'n trade of the country increased greatly; in a word, there took place a marked improvement in the economic conditions of the 

 country. Yet, on the other hand, Japan became a de facto silver-standard coimtry, and all the fluctuations of the price of silver in the 

 world's market came to exercise an immediate influence on her economic and financial condition. 



THE DErUECIATION OF SILVER ,\ND THE COINAGE REFORMS IN FOREIGN COUNTRIES. 



Before 1873 the price of silver did not show great flui-tuations, the ratio between gold and silver standing, as a rule, at 1 of gold to 

 16.5 of silver. About 1H71, however, there l)egan to appear causes wiiich finally led to its sudden fall in recent years. The chief among 

 these causi's were two — the greatly increased annual output of silver since 1871, and the establishment of the German Empire. 



The (lovernment of the united Germany immediately took up the scheme of unifying the coinage sy.'items in vogue in the different 

 ])ortions of the I'mpire l)y replacing with gold coins the silver currency then in use. It issued, theri'fore, a new coinage law, stopjxxi 

 coiniui; standard silver pieces, and in 1S73 put into effect the gold-.-tandard system. It .«oon began to soil larire (juantitiesof silver, which 

 had tin- iinincdinte effi c| of cnu.-ing ilcjireciation. The binu'tallic countries of Europe now saw the diuiijer of Innng turno<l into silver 

 (Mnuilrir.i, so that they l'ecam»> constrained to adopt tht> lines of policy which had the tendency of making th(>m gold-standard countries. 

 Now, tlics(< lines of iiolicy all aimed at the expulsion of silver an<l the absorption of gold. In 1S73 the I'nited States of America adopteti 

 n gold . t mdard, stojipeil coining .silver dollars (excejtt silver trade dollars), and limited the legal-tender amount of the silver dollar to $5. 

 France jMit a limit to the amount of silver deposits received at its mints; and Sweden and Norway, too, adoptinl a gold standard, 

 discarding its standard sivi>r coins, in 1S74. The countries of the Latin Union also put a limit to the coinage of standard silver coins, 

 Holland slopping the free coinage of silver in 1S7">, and Switzerlan<l deciding to cease entirely the minting of silver coins. In 1876 

 France, Belgium, Spain, and Hus<ia followivl these examples, and the I'nited States of America took away the local-tender ipialificationa 

 of the silver trade dollar. These mea.sun's all assisted to bring about the sudden fall in the price of silver, so tnat in 1876 the average 

 rate for the year stood at 1 of gold to i7.SS of silviT. 



At this stage the countries which had in po,><s.«ession large stocks of silver, or which annually proiluced it in large quantities, l<x>k 

 measures intended to stop the fall of the price of silver. In 1878 the Government of the United States promulgated what is called the 



