Japan became an economic powerhouse overnight–or did it?  Discover the power struggles and intrigues behind Japan’s currency reform and its quest for modernity.

 

 

Power and Money: Money Exchangers and Japanese Monetary Reform, 1858-1879

 

Yotaro Komatsu

Carleton College

 

 

Abstract

 

Japanese currency reform from 1858 to 1879 was a highly involved process executed by multiple agents. During this period, new currencies were introduced as national currencies, or legal tenders, by foreign traders and Japanese governments (Tokugawa and Meiji). Through examining the cases in which people refused to accept these legal tenders, it becomes apparent that the cooperation of private money exchangers was imperative in circulating monies, whatever currencies they were. Exploring such historical contingencies in accepting money also reveals the function of the early modern decentralized exchange system in Japan maintained by those private money exchangers.

 

 

 

Introduction

 

 

“On the matter of currency, from its origin, it will not be perfected until currencies are universally accepted in the remote corners and shadows of society.”

 

—October 23, 1868, Meiji Government’s edict[1]

 

Hayek wrote that the government monopoly of money must be replaced by concurrent currencies.[2]  For us today, however, it is not so easy to imagine what “concurrent” monies mean.  For instance, if one were to give a waiter twenty fifty cent coins for a ten-dollar drink, one would naturally expect him to accept the payment. One would be stunned if the waiter specifically demanded five two-dollar bills, or likewise if he insisted on thirty fifty cent coins rather than twenty because he valued coins less than paper bills.[3] Apart from practicality, bills and coins, and moreover dollars and cents, are equally received as money as they share the same standardized measurement in common. Where the stable relationship among multiple units is maintained under a single (dollar in this case) standard, there is no particular preference of one currency to another within a country or a society. Not until recently, however, had Japan established this single monetary standard of valuation, which we have come to call the modern monetary system.[4] Before then, Japan had used gold, silver, copper coins and regional paper monies since the fifteenth century, as represented by the Three-Currency Policy (sankasei, ???). All these had different units and prices were measured by each independently of the others. Payment through these traditional currencies remained preferred until the late nineteenth century even over the yen and new monies issued under successive Japanese currency reforms. Japan’s transition to the modern monetary system was not completed until 1898, thirty years after its inception. 

The focus of this article is what changed in the traditional Japanese monetary system precisely when these concurrent currencies came to be unified and standardized during the late nineteenth century and what factors stimulated or inhibited this monetary change. We might be tempted to accept the change ex post facto, because we now know that most countries eventually did achieve the modern monetary system, which has now become a seemingly global standard.[5] The traditional top-down approach to the question of Japan’s transition to a unified currency system thus traces how two governments (late Tokugawa 1603-1868 and early Meiji 1868-1912) developed their official monetary policies on a single monetary standard during the Meiji Restoration.[6] It teleologically focuses on the formal creation of that standard and the agents within early modern Japan “that helped invent the modern yen”[7].  Instead of judging the nature of currency change from the point of view of where we see it ultimately heading, however, we should assess it in the light of its original environment and in the contexts of contemporary problems. Only by tracing what changed as well as how and why it changed from the preexisting equilibrium can we begin to understand the context of the Japanese monetary transformation, and by extension, how economic modernity came into being.

Recognizing the need to narrate historical changes in the light of their own contexts, this article demonstrates that Japanese monetary reform in the late nineteenth century was a very involved process. It focuses on the initial stage of the transitional period between the early-modern and modern monetary systems during the 1850’s to the 1870’s, when Japanese governments and foreign traders attempted to circulate new currencies as national currencies, or legal tenders, to implement successive single standards: Mexican dollars from 1858, the Meiji government’s paper money from 1868, and the silver yen from 1871 onward. By examining the cases in which people refused to accept these legal tenders, I will first argue that the cooperation of private money exchangers was imperative in circulating monies, whatever currencies they were. After illuminating longstanding contestations between the Japanese government, foreign traders, and private money exchangers, I will show that such a decentralized exchange system maintained by these entrenched money exchangers functioned in its own coherent manner. By juxtaposing peoples’ demands for currencies and their actual circulations, I will explain how the multi-standard system maintained a stable supply of currencies for daily use despite seasonal disruptions in currency circulation.

Yet currency reform was not hindered only because the status quo was functional.  By vigorously defending the multi-standard system based on several currencies, money exchangers were able to skillfully exploit the turbulent monetary situation to their advantage, further entrenching their power and increasing the demand for the exchange of coins with small denominations.[8]

In discovering such historical contingencies in accepting money, hopefully this research will open up a new vista for investigating the emergence of the modern monetary system.  As stated above, almost every country replaced its concurrent currencies with standardized monies between the late nineteenth century and the early twentieth century. In order to construct this complex and simultaneous process of worldwide monetary transformations everywhere, I would suggest the need for a wider comparative approach in the field, for several reasons.[9]  First, we scholars need to critique assumptions that the experience of any one society provides a pattern true for all other societies, let alone that there was any inevitability about the assumption that the pattern according to which the modern monetary system developed was inevitable.  Yet at the same time, we need to identify which features of monetary transformations are general and which society-specific.  Traditional studies have narrated the monetary transformations toward the modern system with a one-dimensional Western-biased orientation, accepting them as rather uniform and universal changes brought by a capitalist system of European origins.  As our understanding of these global changes deepens, however, we will be able to show that the each country in East Asia experienced more complex processes in revising their monetary systems toward today’s standardized currencies than has previously been assumed.[10]

Yet the present historical inquiry regarding Japanese monetary transformations also touches on a more basic and recurrent theme of the larger historiography of economic development in East Asia. Economic historians writing about the eighteenth and nineteenth centuries have asked how modern economic development in East Asia became possible and, more fundamentally, which “modern developments” are to be discussed when looking for the origins of the contemporary world. One vector for these developments that has been cited by scholars is the large number of merchants, mostly from Europe and China, who traveled to newly established port cities on East Asia’s waterways in the nineteenth century, bringing with them a new flow of ideas and goods and contributing to  institutional changes in each country.[11].  Another strand has taken commercial activities in the East Asian Sea as their central theme and examined transformations and national economic growth in relation to a regional economic framework.[12] Other strands adopt more totalistic approaches, and focus on the interdependency of economic developments in terms of access to natural resources in each country.[13]  Their methodologies have provided avenues to look at economic history from a global and more comprehensive perspective.[14]  Moreover, they have challenged us to become more aware of the complexity of internal changes in the political economy of East Asia, and to understand them in their own terms and contexts.[15]

As part of this new trend of East Asian economic scholarship, this article seeks to establish a foundational understanding of how Japanese currency reform was formally effected by multiple Japanese and foreign agents in the nineteenth century and to serve as a springboard for further inquiries.[16] Among the questions regarding the Japanese monetary reforms that we can ask are: why did the establishment of the single standard take so long, indeed more than 30 years until Japan’s complete establishment of the gold standard in 1898; why did Japan eventually choose gold and not silver as its standard[17]; how did the government’s fiscal policies affect the circulation of legal tenders; how are monetary reforms in each country in East Asia related, and how did they affect the regional development as a whole; or, how did regional development affect the development of individual countries?  My current research cannot provide satisfying answers to all these questions, and future studies are strongly encouraged. Given the scarcity of secondary literature dealing with Japanese monetary transformations from the abovementioned standpoints, however, it is only after reconstructing a basic narrative of who the main agents were and how they interacted with each other and with their currencies that we can embark on more involved discussions of the emergence of the modern monetary system.

 

 

The Decentralized Exchange System — Money Exchangers and Three Currencies before the Mid-Nineteenth Century

 

 

Prior to the middle of the nineteenth century, the demand for small denominated currencies rapidly increased. Official statistics show that the Tokugawa government minted and widely circulated various types of coins under the rubric of the Three-Currency Policy, including copper coins (1000 copper mon = 1 copper kan), silver bullion (10 silver bu = 1 silver momme), as well as silver and gold coins (16 shu = 4 bu = 1 ryo). The central government also made sure that the coins of different metals could be exchanged at fluctuating rates.[18] Also, different shogun issued different coins which bore their names, and the old and new coins were used concurrently.[19] In this system of multiple currencies, everyday transactions relied almost exclusively on currencies with small denominations, such as coins expressed in units of mon or shu.[20]  With the intention of making these transactions more convenient, the shogunal government introduced more small token coins, and according to Iwahashi the proportion of money with smaller denominations greatly increased from 15% in the 1770’s to 33.5% in 1860’s.[21] Accordingly, payments were made in all sorts of combinations of metal coins.[22]In contemporary literature, we encounter vivid examples of this flexible convertibility. Strolling Along the Tokaido Highway, a fictional travel novel published between 1802 and 1822, illuminates the experience of two casual travelers, Kitahachi and Yajirobe, who journey between Edo and Osaka. One day they come across a landlady at an inn in Kyoto, who offers a room for 400 mons per night. Because Kitahachi and Yajirobe incorrectly assume that the charge includes both room and board, they are at a loss when they receive the bill:

 

“Yajirobe: (reading the receipt) What? I heard that room and board per night would cost 4 mommes per person, or 8 mommes [of silver coins, equivalent to 860 mons of copper coins.[23]] in total for two of us. And what is this charge? 4 mommes for fish, 2 mommes for sushi, 1 momme and 8 bus for alcohol, 5 bus for candles, then 16 mommes and 3 bus for…in total?…I thought alcohol and fish were included in the lodging charge. Kitahachi, Look!

 

Kitahachi: What? (confronting the landlady)…Kyoto people are so [money-conscious]. You even charge us for the candles?

 

Lady: How dare you accuse us Kyotoites of being stingy! You whine about the price after finishing all the meals? What nonsense!

 

Yajirobe: (giving up reluctantly) Okay, I’ll give you 1 bu [of gold coin, equivalent to 15.8 mommes[24]], but forget about the small denominations!”[25]

 

            What we find interesting here is as follows: The landlady charges the room in terms of copper coins, even though they were denoted in silver ingots. Yajirobe, however, pays the bill in gold pieces. The people do not bother to calculate the exchange rates in meticulous detail. Instead, they use different types of metals indiscriminately, moving between them with ease.[26] This story testifies to the convertibility between various metals nationwide and to the acceptance and coherence of the exchange system despite its apparent complexity.

            In order to maintain the convertibility of the diverse currencies, however, carriers of these currencies had to assume that they would be accepted by others. Another episode in Strolling Along the Tokaido Highway clearly reflects this tacit consent. One day, while traveling in Kyoto, Yajirobe and Kitahachi are approached by local female peddlers carrying huge billets of firewood on their heads. One of them, offering a ladder for sale, begins the following conversation:[27]

 

“Lady: I can give you a discount. Give me just six mommes [of silver coins for the ladder].

 

Yajirobe: I can buy it if it’s 200 [mons of copper coins, equivalent to about 1.8 mommes.].

 

Lady: Eh, you’re talking about the [coin] that clinks, aren’t you? This ladder is worth more than that.

 

Yajirobe: No way.

Lady: Hey, this ladder is made of really fine wood. How about five mommes?”

 

            The peddler eventually steps back and accepts 200 mons. The reason why the local lady prefers the silver to the copper coin is not clear from the above description alone. It may be due to a discrepancy between the official and local rates that favors silver, or perhaps she prefers the silver coin simply because the area is accustomed to silver. Either way, it is worthwhile to notice that the peddler accepts copper for the payment, even though she does not seem to be very familiar with the metal she describes as “the thing that clinks.” She must believe that other people, to whom she may offer the copper coin in a future deal, will accept it.

This conviction of hers seems to be sustained by the presence of money changers. It did not matter whether people actually brought coins to a money changer in town to make a deal. Rather, there existed a tacit understanding among carriers that currencies would be readily convertible at a neighborhood exchange house. Indeed, Strolling Along the Tokaido Highway describes a variety of money changers on the road. The narrator comments that, “money exchangers ring their scales, their eyes open as wide as plates,” always asking, “do you need to exchange money?”[28] Hizakurige, along with other early nineteenth-century materials, does not provide us with a direct and detailed account of the daily activities of the money changers or of their legal status, but in it their matter-of-fact activities are unmistakably reflected. The ubiquitous operations of the money exchangers throughout Japan made the smooth circulation of a variety of metal pieces possible.

At first glance, the increasing convertibility among the traditional currencies during the early nineteenth century seems like a perfect preparation for the coming modern monetary system in terms of the transition to the single standard. Existing studies, in fact, have hastily concluded that Japan’s early-modern monetary system paved the way for the transition to the modern monetary system without any difficulties.[29]  Accordingly, the role of the money changers has been considered a necessary evil in Japan’s backward currency system, destined to fade away as the (modern) single standard was implemented. However, as will be shown in the next section, there was a breakdown of the convertibility between currencies as traders and the Japanese government attempted to implement new currencies under the formation of the single standard after the late 1850’s. Although the Tokugawa government repeatedly ordered the Osaka money-changing houses to fix their rates along the official scale, the rate continued to be unstable after the late 1850’s (Graph 1).[30] This suggests that the money changers were not exchanging currencies at officially mandated rates and that “concurrent currencies” came to appear again, hindering the monetary reforms aimed at effecting a transition to the single standard.

 

 

 

It was in this context that the  power of money changers became even more conspicuous in the late nineteenth century, as new currencies significantly different from traditional monies were issued. One of the new currencies was the Mexican dollar, which had been used in Japan since 1858, when full-scale trade with the West had resumed. While foreign traders exerted pressure on the shogunal government to create a legal tender pegged to the Mexican dollar, local merchants resisted the adoption of this form of legal tender in spite of mounting pressures from both the traders and the Japanese government. This situation continued until the money changers accepted Mexican dollars as a legitimate means of payment and consequently cooperated with the government’s and the traders’ initial efforts at currency reform in Japan.  As will be seen, similar longstanding contestations between traders, the government, and money changers were at the root of both the continuing power of the money changers and subsequent efforts to make other currencies new legal tenders.

 

 

Power Contestations between Three Agents —

The Decentralized Exchange Regime vs.

The Centralized Exchange Regime

 

 

Money Exchangers and Mexican Dollars: 1858-1861

 

            The process of circulating Mexican dollars started with the intricate interplay between Western traders and the shogunal government. Upon the “opening” of the trading ports in Japan, Western traders first demanded that the Japanese government issue a legal tender for their commerce.[31] Given that Japan maintained an irregular and often confusing currency system, it was natural for the Westerners to negotiate with the shogunal government over the proper medium of exchange for international trade. Thus, in the Treaty of Amity and Commerce of 1854, American delegates demanded that their Japanese counterparts implement the following conditions:

 

1. All foreign coin shall be in circulation in Japan, and pass for its corresponding weight of Japanese coin of the same description.

2. Americans and Japanese may freely use foreign or Japanese coins in making payments to each other.

3. As some time will elapse before the Japanese will be acquainted with the value of foreign coin, the Japanese Government will, for the period of one year after the opening of each harbor, furnish the Americans with Japanese coins in exchange for theirs, equal weights being given, and no discount taken for re-coinage.[32]

 

Subsequently, the Japanese government made the same arrangements with other countries, including Britain, Holland, Russia and France under the rubric of the most-favored nation clause.[33] The reasons behind resistance to the new currencies from within the domestic market, however, require further analysis. Indeed, as the third article stipulated, both Western traders and the Japanese government knew that some time had to elapse before foreign coins could become widely circulated in Japan.

Although the treaty’s stipulations attempted to force the circulation of foreign coins in the interior market, those coins were barely used by native merchants. Reflecting the major trends in the contemporary intra-Asian trade, merchants initially desired silver coins as their trade medium.[34] Thus, while Western traders brought Mexican silver (Mexican dollars), Japanese merchants demanded payment in 1-bu silver coins (ichi-bu gin, ???).[35] According to the treaties, 1-bu silver coins were officially agreed to be exchanged for Mexican dollars at the rate of 311 for 100. In actuality, however, the “native dealers demanded payment for their goods in itiziboos [sic], or, when none were to be had, in dollars, at a greater or less discount.”[36] In order to avoid a loss from using Mexican dollars, the Western traders rushed to government-designated money-changing houses. They did this with the expectation of acquiring the 1-bu silver coins at the clearing houses, as guaranteed in the treaties. Their demand soon turned out to be enormous; a Chinese newspaper reported, the “Government at Yeddo [sic], availing themselves of an offer of Mr. Consul-General Alcock, sent to Hakodadi [sic]…treasure amounting to 40,000 Izebues [sic].”[37] Of course there were limits to the supply, and it was decided, in Yokohama for example, that “only 10,000 itzebous [sic] will be exchanged” per day.[38] Because of such inconveniences, the Western traders began to file complaints, and the Japanese central government acquiesced to “keep sending 10,000 pieces of 1-bu silver monthly from Edo to Kanagawa.”[39] Yet this promise stood on hollow ground, because the Japanese government could guarantee such an official arrangement for only one year according to the original treaty.

After the first year, predictably, the domestic merchants still refused to use Mexican dollars. In response to this “trouble,” Western traders felt that they needed to put more pressure on the Japanese government. Reflecting their dire anxiety, the North-China Herald, an English newspaper published in the treaty-port city of Shanghai in China, carried minutes of the meeting that a British consul at Yokohama had held with foreign residents on February 19, 1861. The representative of Western residents contended that the framers of the treaties had undoubtedly “thought such a period [one year] ample, but unfortunately the contrary is the fact – twelve months has not been enough – and such being the case, I humbly think, Mr. Chairman, that we have a right to fall back on the meaning and intention of Article X of the Treaty,” and to “obtain from the Japanese governments a fresh grant of time for the exchange of Japanese foreign coins.”[40] On the other hand, he also admitted, “there is a question, and a difficult one, as to how far it is in the power of this [the Japanese government], or any other government, to force a foreign coinage into general circulation, and at a fixed rate or valuation!”

The reluctance to accept Mexican dollars was due to the lack of incentive among domestic Japanese traders, unlike the situation in China at the time. Contrasting the Chinese and Japanese cases, the aforementioned representative argued that China was a place “where they have no coinage to displace, where a coinage of any kind is a great desideratum, and where dollars of Spain and of American States…have for the last twenty years been in circulation at five ports on the coast…this free circulation throughout the country.”[41] Indeed, China suffered from a shortage in currencies due to the silver crisis during the same period, and as a result, Mexican dollars were in circulation in the interior market from Shanghai to Chongqing.[42] By contrast, the Japanese monetary situation at this point was relatively stable.[43] The same representative described the Japanese as “possess[ing] a coinage superior…to wit, the admirable bronze coin of one tempo.”[44] A contemporary Japanese merchant also recalled that, at the time, “Japanese exporters were mostly manufacturers or merchants from local countryside, where Mexican dollars were rejected. So they refused to receive Mexican dollars.”[45] The Japanese merchants did not receive Mexican dollars because they did not expect others to accept it as a currency in the future since their daily customers were the same domestic merchants who used native coins, and in such a situation, Mexican dollars could not be a store of value. Therefore, there was no compelling incentive for native merchants to observe the government’s enforced use of Mexican dollars. 

Although it was fleeting, governments and foreign traders found an ‘improvement’ in terms of a single standard creation when the private money changers started to accept Mexican dollars. A seasoned former money changer in Yokohama provides us with a collection of interviews with Japanese merchants, whose oral testimonies furnish descriptions of how the Mexican dollar changed over time as the medium of exchange. One of them recalled:

 

“Initially, the medium for the trade was 1-bu silver. Yet in 1861, there was a merchant in Maebashi, called Miyoshi Zenemon, who came to know that money changers in Edo, particularly those in Nihonbashi and Muromachi, began to exchange a Mexican dollar with 46.7 momme of silver coins. Now he sold foreigners some of his raw silk, and received Mexican dollars in their payments. Since then…Mexican dollars started to be used in payments, and became the medium for the trade, replacing 1-bu silver.”[46]

 

With the appearance of money changers who dealt with Mexican dollars, people finally began to accept the currency.[47]

            However, the circulation of Mexican dollars was only the beginning of a series of contestations over proper exchange rates. Triggered by the exposure to the single standard that came to be adopted in other parts of the world through Western merchants, successive central governments in Japan increasingly oriented themselves towards a constant exchange rate.

            Upon the opening of the port of Yokohama in 1858, the shogunal government had granted a monopolistic charter to Mitsui, one of the most influential merchant groups, to conduct money exchange services on the government’s behalf. The licensed guild merchants at Mitsui were thus given an exclusive privilege to exchange the 1-bu silver coin for Mexican dollars that foreign traders would bring to the market.[48] Capitalizing on their monopoly, the Mitsui money changers soon requested extended exchange services to buy Mexican dollars which had by then become accepted among domestic merchants in port cities as a means of payment. As a result, in 1861, the government chartered Mitsui to set up a dollar purchasing house for domestic merchants.[49]

Yet the influence of the private money changers’ network was much greater than that of the government-sanctioned exchange houses in deciding the exchange rate, and they quickly ran their rivals out of business. As a Japanese merchant said in an interview, “as the [Mitsui] purchasing house was chartered and well-organized, at the expense of the [private] money changers who were losing their margins, the private money exchangers came to concert with one another to boycott the exchange [at the government-designated exchange house]. As a result, the Mitsui house had to close less than a year.”[50] In defiance of the government’s attempt to set the official exchange rate between Mexican dollars and Japanese coins, the local money changers made a series of collective actions of obstruction.

It was not only the government but also foreign traders who saw the continuation of this decentralized exchange system with an increasing sense of frustration.  One trader reported that the “exchange between dollars and Japanese coins has formed a subject of more or less complaint” in every port city throughout the years.[51] A trader in Hakodate also remarked in 1864 that the “greatest obstruction to our trade is…the exchange, which is ruinous to the foreign merchant.”[52] In 1868, when the new Meiji government declared the fixed exchange rate once again, a newspaper for foreign residents in Yokohama responded with enthusiasm: a “great moment to foreign merchants is announced…the exchange of Boos against Dollars at the rate of 293 per Hundred.”[53] Yet Japanese merchants continued to use the fluctuating rates in domestic transactions and foreign traders continued to lodge their complaints, requesting that the Japanese government overhaul the decentralized exchange system. 

It is easy for scholars to narrate the Meiji reformers’ difficulty in transforming the traditional monetary system by emphasizing the Japanese government’s struggle to respond to mounting Western pressures. When we assume that the aforementioned orthodox path every country could follow in its adoption of the single standard is a necessary contingency, we are tempted to see any deviation as an unfortunate historical aberration.  Accordingly, scholars have overlooked the reasons behind resistance to the new currencies from within Japanese society and statements from the contemporary Western traders have been overemphasized in existing studies. As firm believers in the intrinsic value of metals, those traders observed that the “relative values of gold and silver in Japan are grossly different from the standards universally accepted in all other civilized countries.”[54] In Japan, they contended, the rate was “maintained by the arbitrary action of a powerful despotism” of the government.[55] Labeling the new government as “these half-informed gentry,” dissatisfied Western traders went as far as to say “if any Japanese ever deserved the honors of hara-kiri, it is this ingenious dabbler [the government] in banking.”[56] A contemporary foreign news report also stated that a “new Government, centralized, but with yet many obstacles to its permanence…rush[ed] to action upon principles of finance imperfectly understood and [did] what France and America have both done in similar circumstances.”[57] As has been demonstrated, however, it was not really the government’s incapability, but rather the power of the money exchangers that prevented the creation of the single standard. The Meiji government began to carry out a second wave of monetary reforms by introducing paper money, but once again the government’s initiative to create the single standard with fixed exchanged rates faced resistance from the money changers.

 

The Decentralized Exchange System Continues: the Meiji Government’s Paper Money, Kinsatsu

 

The Meiji government embarked on a new monetary reform in 1868 by issuing a convertible paper money called kinsatsu (??). The economic rationale behind this pivotal move was to withdraw all the old and “bad” coins in circulation and to reissue them in accordance with the new legal tender.[58] The Meiji oligarchs once again relied on the Mitsui house to issue an enormous amount of notes with the intention of “ameliorat[ing] the current money market situation which was extremely tightened.”[59] An imperial ordinance supported the young government’s decision by declaring  in 1868 that the “notes shall circulate throughout the realm for the following thirteen years.”[60] Consisting of 10-ryo, 5-ryo, 1-ryo, 1-bu, and 1-shu denominations, the ordinance continued, the new notes were to “be used equally as other metallic species.”[61] With the issuance of these bills, the reformers attempted to convert all the old coins into convertible notes.

Nevertheless, people refused to receive these notes at their face values. The reformers dispatched junior officials to the countryside with the mission of investigating kinsatsu circulation locally. Following the broad investigation, the commissioners released a disheartening report: “within each domain, only few people use kinsatsu; local market situations have now turned very confusing…the values of gold coins in kinsatsu terms shot up; thus everyone is storing metal coins…; the price of rice and other goods is also going up in kinsatsu terms.”[62] Interestingly enough, the report points out that the distrust towards the legal tender also resulted in the hoarding of old coins. Another commissioner reported, “reacting to the anxious feeling towards kinsatsu, I find people hoarding the 1-shu and 1-bu gold coins in particular.”[63] In the other area, “people pay with 1 ryo of kinsatsu to purchase a bale of rice but they keep using gold coins for the remainder.”[64] Because of their failure to achieve fixed conversion rates between paper money and metal specie – a failure caused in large part by the Japanese people’s conservative attitudes towards kinsatsu – the reformers had to postpone their initial plan to withdraw all the old coins.[65]

It was the local money exchangers who fanned the widespread monetary conservatism. The money exchangers set fluctuating values to the currencies in circulation which nominally had the same face values. The Meiji government issued successive edicts to prohibit the floating exchange rates in terms of kinsatsu every month in 1870, which suggests that these bans were not effective at all.[66] The failure to legally enforce the edicts was derived from the fact that people conducted their business about “15% higher in kinsatsu terms” than the usual market prices.[67] In such circumstances, one did not need to be a professional money exchanger to manipulate the differences in rates. According to the same report, “taking this loophole, clever traders are mixing up the metal species with paper bills [to skim off the margins], leaving with detrimental effects [on the further circulation of paper notes].”[68] These profiteers even went on to “spread groundless rumors; confused farmers; consequently, people in Yokohama never accept kinsatsu. Taking advantage of this odd situation, however, these profiteers hoarded various coins and kinsatsu [for future speculation], pushing our government to currency imbalance.”[69] A few radical reformers within the government proposed to “execute those who gorged the margins in the middle out of the rate differences” that floated between paper and metallic currencies. Although this particularly extreme proposal does not seem to have been enacted, it is safe to conclude that an ongoing tension existed between the decentralized and centralized monetary visions.[70]

The actual situation in local monetary markets remained too convoluted to be fixed with a single stroke; once-stable coins also became subject to the increasingly fluctuating exchange rates. Again, the investigators whom the Finance Minister Okuma Shigenobu (1838-1922) had dispatched to different parts of Japan in the early 1870’s came up with depressing reports. They echoed one another in pointing out that different values were attached to the existing coins - a phenomenon we do not find in the description of the Hizakurige tale of the early nineteenth century. For example, “a 4-cash copper coin (bunkyu-sen, ???) of the Bunkyu era (1861-63) came to be taken as worth an eight-dollar note of the Meiji era; a 4-cash copper coin (kan’ei-sen, ???) of the Kan’ei era (1624-1643) was taken as worth a twelve-dollar note of the Meiji era.”[71] The Meiji government had proscribed the circulation of these old copper coins more than four times. Such bans, however, were ineffectual except within the first two years, between 1868 and 1870.[72] One of these proclamations, issued in September 1869, specifically targeted money changers: “As for a 12-cash copper coin (shinchu-sen ???)…in the private exchange market, the [profiteers] secretly conducted monetary transactions…From now on, money changers as well as traders should faithfully observe the stipulations governing the rate of this particular coin.”[73] It was money changers who were cited as responsible for the tensions between the traditional currency system and the reformed system with the single standard the government wanted to implement.  Clearly, then, recognizing the entrenched power of the money exchangers contributes to a more comprehensive understanding of the Meiji reformers’ subsequent difficulties in leaving the early-modern monetary system that had lasted for more than four hundreds years.

 

Towards the End of the Decentralized Exchange: From Single Standard to Double Standard, the Silver Yen

 

The promulgation of the New Currency Ordinance (shinka jorei) in 1871 was the most important and comprehensive attempt by the Meiji government in establishing a single currency system in Japan. The new law stipulated the introduction of new monetary units of yen, the gradual termination of the old coins, and basing “all the coins on the gold standard.”[74] Accordingly, the reformers also introduced 50, 20, and 10 sen silver coins as well as 1 sen and 1 rin copper coins as legally convertible currencies against the standard unit of the gold 1 yen. Based on the decimal system, the exchange rates between these newly minted coins were ordered to be fixed. Matsukata Masayoshi (1835-1924), the new finance minister who replaced Okuma Shigenobu in the 1880’s, recalled in his memoirs that the promulgation of the new law was one of the “most successful steps taken in the development of the coinage system since the early years of Meiji.”[75]

The New Currency Ordinance, however, did not establish a modern single standard overnight, although it was certainly a first step in its formation. This paper does not claim that the power of the Japanese money exchangers had completely hindered the development of the modern monetary system nor does it attempt to provide local instances of money exchangers’ activities. Instead, I will demonstrate that the government’s difficulty in implementing the single standard was due to the continuing reliance on multiple standards.  Presumably, this would have created an economic environment where the money exchangers could have continued to operate.  Yet this is not to assert that money exchangers did in fact have a role before the complete adoption of the single standard, and how they would have continued to operate through this period is a question that merits further research.  Nevertheless, before scholars can embark on that line of inquiry, the problematic and delayed implementation of the New Currency Ordinance must be explored. Of primary importance in investigating this change is to observe that while the government’s objective was to create a single standard, it undermined its goal by in fact allowing for multiple standards to operate. The New Currency Ordinance added that the gold standard principle should be complemented with the silver standard system: “The 1-yen silver piece is to be coined…in response to the demands of both Japanese and foreign traders,” and this new silver coin “shall be circulated as legal tender in the treaty ports.”[76] Although the Ordinance made sure that the silver coins would “not be legal tender outside of the treaty ports limits,” it also included the exception that they “may be freely used in transactions where parties concerned mutually consent to its use.” As a result, the system of coinage slipped from the single gold standard to a gold and silver bi-metallic system.

The continuing early modern monetary system with double standards implies that there was still an opportunity to profiteer from the discrepancies between the gold and silver standards during transactions. The Ordinance had fixed the legal exchange rate between the gold and silver currencies with “100 silver yen worth of 101 gold yen.”[77] Yet the graph below (Graph 2) shows that fluctuating exchange rates between the bi-metallic standard coins and paper money existed, even though the fluctuations were not as great as the old coins.[78] Thus, there was still a discrepancy between the intrinsic values of new gold and silver coins in relative terms, a situation on which many Japanese money changers must have capitalized. A warning from a contemporary foreign trader also testifies to this turbulent situation that money exchangers could have exploited: “The Government, making the new silver money legal tender at the ports only, and gold for circulation in the interior, may cause some difficulty. The practical result will be to cause fluctuations in the value of gold and silver, which will be very inconvenient to merchants, and only play into the hands of the small bankers and money-changers.”[79]

 

 

 

The creation of the double standard system was not the scenario that the planners of the centralized monetary system had envisioned. In April 1870, not long before the Meiji government announced the New Currency Ordinance, John Robertson, a British manager of the Oriental Bank in Yokohama, sent a letter warning the Finance Ministry: “Many countries in Europe have recognized the failure of the gold silver bimetallism from their experiences. Thus, if Japan mistakenly adopts the bimetallism, the minting office will have less profits and harm public good.”[80] The Meiji government did not follow his advice, not because it was ignorant of the international trend of adopting a single standard, but because it could not maintain the single standard, due to the increasing demands of profiteers who needed continued discrepancies between the two standards.

 

The Decentralized System as an Alternative Monetary Model: Elastic Supply of Small Currencies

 

While exploring the importance of neglected contestations between Meiji governments, foreign traders, and money exchangers in Japan’s early modern monetary transformations, this paper has largely focused on the powerful resistance of the latter group to the creation of a single standard.  More generally, the argument presented so far has been a narrative of vested groups and human agents, which often prompts questions of volition and intention.  This paper has largely avoided those questions for a lack of sufficient scholarship, although some motive may be implied when we say that the Japanese government responded to foreign pressure or that money exchangers profiteered.  Yet these should be read as statements of fact, and even if any assumed motivations were true it is unclear whether they would be the only ones or if, in fact, we can ascribe different motivations and in general different reasons to these changes.

Some of these reasons may lie not among the intentions or desires of the agents discussed above but rather at a systemic level.  The fact that some denominations were accepted and others were not during each phase of Japan’s early modern monetary reforms suggests that some structural explanation may be useful to the present inquiry.  In that regard, it is important to note that the use of different currencies maintained the flexible circulation of money in the market by partially decoupling one currency from another through seasonally periodic exchange rates. Viewed from this perspective, the multi-standard system functioned in its own coherent way, whereby an elastic monetary circulation was effectively maintained in proportion to people’s seasonal activities and a dislocation in one market became less conductive to the other.

This new inquiry must start with Japan’s difficulty in controlling its gold and silver currencies. For one, Japan was under constant pressure due to a shortage in gold and silver currencies. There was too much exchange of Japanese currencies with Mexican dollars, an outflow of gold and silver due to international speculation, and trade of metals themselves as material.[81] These factors combined contributed to a net outflow of the metals overseas. As a result, the market was “being drained of its currency, which is shipped to India and China as bullion,” according to a consul’s observation.[82] Sometimes the market also faced “a great scarcity of [silver] money in the hand of the native… merchants.”[83] 

To make the situation even more complicated, there also existed seasonal activities that influenced the circulation of each metal. For instance, the summer season often saw  comparatively more circulation of silver coins than in the winter season. This was because foreign traders “send money [silver coins] to Yeddo [sic], and purchase” silk in the summer.[84] The payment for purchase was made through silver coins, and as a result there were relatively more silver coins in the hands of Japanese merchants in the summer. A surplus of the silver coins in summer in turn led to silver’s depreciation when they were not used in less active seasons.[85] 

 

 

 

 

            The exchange rates for three years from 1864 to 1866 show this periodic fluctuation of circulation (Graph 3).[86] While gold and copper were on appreciated relative to silver throughout the period, we find that silver coins periodically depreciated towards the summer and appreciated in the winter. In their complaints about fluctuating prices of silver bu, many Western traders accurately captured this periodic relationship. According to them, due to the “depreciations [of the new silver bu], as is usual at the commencement of the silk season, July and August,” making business predictions was quite difficult.[87] Thus, silver coins seemed to experience an unpredictable fluctuation in its circulation, and its relationship between copper and gold coins were constantly adjusted and balanced through the changing exchange rates.[88]

Yet despite the unstable circulation of silver and gold currencies, the price of items was surprisingly stable. Graph 4 shows that, for example, the price of rice in terms of copper coins during the first half of the 1860’s remained relatively steady given the capricious circulation of gold and silver coins.[89] 

 

          The relative stability in the rice price was remarkable because, as most modern economists would agree, deflation is likely to happen when currencies became scarce and inflation should happen when currencies are in excess.[90] In the early modern and multi-standard monetary system, however, Japanese people prevented a big fluctuation in the prices of necessities by using those currencies which were in stable and predictable circulation during any particular season. As we have seen in the Hizakurige tale, it was more common for the people to buy rice with the copper coins. They did not choose to receive the monies whose circulation was vulnerable to seasonal and unstable activities.[91] 

The multi-standard monetary system gave people the option to prefer one currency over another, thus allowing for a decentralized mechanism for controlling accessibility to specific currencies by adjusting the exchange rates between them during the transactions themselves rather than by controlling the official circulation. According to the observation made by a Western trader during the same period, for instance, “Tempoes [100-cash copper coins] have also varied considerably in value throughout the year.”[92] Japanese merchants exchanged copper coins and gold coins, he continued, “during the spring…at 123 per rio [sic],” while “in August, when a combination amongst the rice shopkeepers took place, and they agreed to take nothing but tempoes [copper coins] in payment for rice…[and exchanged the two metal coins] at 84 per ryo.”[93] In this statement we see that the periodic fluctuation of the price of copper coins relative to that of gold coins functioned as a barrier separating copper coins for rice payments from gold coins that were more easily subject to the other factors. By attaching flexible exchange rates to the diverse coins apart from the official rate, depending on the preference of each currency at the time, the multi-standard monetary system effectively maintained an elastic monetary circulation in proportion to people’s demands in one market, even when there was shortage of currency in the next.

Yet the extreme form of this multi-standard monetary system was the total rejection of any exchange between national and local currencies. According to a foreign observer’s report in 1871, “In the territories of some of the Han [domains] in this part of the country, local paper still continues to circulate; in Yonezawa, for example, and, to a small extent in Shibata. As such paper does not find acceptance beyond the limits of the territory where it is issued, it naturally acts as a barrier, effective in proportion to the amount in circulation, to transactions between that territory and the rest of the country.”[94] The word “barrier” clearly had a negative connotation to this foreign trader, as the use of local currencies must have prevented Western traders from conducting commercial activities with other domains in Meiji Japan. Yet this is a critique from the perspective of the modern single-standard monetary system, where anyone can use one’s own currency anywhere at any time. Before this very recent invention, however, such an assumption was not necessarily the norm. In the early-modern multi-standard monetary system, the monetary barrier generally protected the market from the messes that may have occurred in other regions.

 

 

            At the same time, while some barriers could help protect certain internal markets from one another, maintaining overall exchangeability between currencies remained crucial for the system as a whole.  For example, the scarcity of diverse coins in the 1860’s disrupted the stability of the price of rice when the exchange mechanism stopped functioning (Graph 5).[95] The rise was often attributed to the shortage caused by bad harvests and frequent debasement of silver coins, but these could not have been major factors. For example, when a famine struck in the late 1830’s, the price of rice only increased three times at most, from 963 to 2800 mon. Comparing the two the rises in the late-1830’s and late 1860’s, however, the unusual inflation during the latter, almost ten times higher than 1865’s price at most, must have been due to factors besides natural disasters. Frequent debasement was also not behind the inflation. Contemporary foreigners blamed the government’s debasement for the inflation. Foreign merchants in the Yokohama settlement criticized the government’s debasement policy, the “gradual rise of prices all over the country, ignorantly attributed…solely to our intrusion, which did nothing, in fact, but compel their rulers to abandon a wholesale system of robbery.”[96] In contemporary foreigners’ eyes, inflation rose because the “Government revenged itself, in its last assault upon the currency, by robbing us as well as its own people; the latest depreciation of the coin.”[97] Yet the debasement itself had been continuously carried out by the government throughout the nineteenth century, and it worked. As previously mentioned, the increasing issuance of token coins functioned as an effective and expedient solution for the shortage of small currencies to meet people’s immediate demands. More importantly, for the debasement to affect the price of items, the debased coins needed to be accepted at their face values. As this paper has argued, however, the par acceptance did not happen in the late nineteenth century.

Therefore, inflation during the late 1860’s should be attributed to another factor, the most probable culprit being the shortage of diverse coins. The year 1867 saw a huge excess of imports over exports. “To meet with this emergency it was necessary [for the Japanese merchants] to have recourse to the old coins of the country, and large quantities of nishus and niboos (in which there is a large per-centage of gold), likewise old silver boos, were shipped to Shanghae [sic] and Hong Kong, where they met with a ready sale, and realized a profit. These old coins soon became scarce, and the natural consequence was that they rose in value.”[98] As indicated in Graph 1, the value of the copper coin rose from 9 mommes to 21 mommes, and the gold coin, from 61 mommes to 223 mommes over the course of the 1860’s. In addition, in 1868, the government withdrew earlier edicts that had prohibited the use of old coins.[99] This move confirms the sustained demands for the old coins. Another source corroborates the point that different domains throughout the country from 1867 onward kept minting copper coins to ameliorate the problems associated with the shortage of coins: “many of the Princes…are now evincing a desire to work [the copper mines], so that in a short time it may be expected to see a large quantity of copper.“[100] Thus, the normalization of the price of rice after 1868 interestingly coincided with local efforts to increase the supply of copper currency as the multi-standard exchange regime allowed people to issue currencies whenever there was a demand for them.

To conclude, even during the late nineteenth century, the official supply of currencies by the government did not necessarily meet the demands of the actual currency users; a mismatch between demand and supply quite often resulted in the rejection of government’s monies. As seen in an example of Niigata, local agents continued to make their own currencies autonomously during the 1870’s, despite the government’s bans.[101] Seen in this light, however, it is too hasty to attribute local governments’ issuance of their own currencies to the local authorities’ efforts to cope momentarily with their financial shortages. The fact that people actually accepted the local currencies tells us that they demanded vernacular currencies, apart from the official currencies for their own reasons.[102] It is this selection of monies that shaped the contours of the late Tokugawa and earlier Meiji multi-standard system. Our discussion thus far has shown that the  multi-standard system was a viable economic system in which the various currencies were able to provide the Japanese society with a stable economy.

 

 

Conclusion

 

 

            Building on the current historiographical trends that seek to validate alternative development paths to a modern economy, this paper has shown that the Japanese monetary system involved multiple agents and its own functions of currency between 1858 and 1879. Indeed, money exchangers were vital in circulating both old and new currencies at the turn of the last century in Japan. In the process, longstanding contestations between the tripartite agents – the central governments, foreign traders and indigenous money exchangers – were brought out. By analyzing the functions of this decentralized monetary regime, I have also explained the intricate mechanisms used to supply sufficient currencies to multiple layers of differentiated markets. In doing so, our discussion has surpassed the conventional and unnecessary boundaries set up between the “old” Tokugawa government and “new” Meiji government, and those between “deviant” diverse Tokugawa currencies under the Three-Currency Policy and “scientific” Meiji currencies from the New Currency Act onward.

By the 1880’s, however, Japanese money exchangers no longer saw arbitrage opportunities in the domestic currencies market. As one contemporary Japanese observer said, “these days, money exchangers make big profits through the exchange between Mexican dollars and Japanese currencies.”[103] This report reflects that the potential margins between the domestic currencies had become less profitable than those between Mexican dollars and Japanese currencies by then. An analysis of the causes that precipitated this transition remains out of the scope of the present research, yet these findings generate many related and intriguing questions: Was it the money exchangers who capitalized on new opportunities in the foreign currency exchange market? Or was this transition an indication that the Meiji government finally began to hold a firm grip on the domestic monetary market? Whatever the answer might be, the Meiji government eventually managed to change its bimetallic system to the mono-metallic system of silver in 1887 and of gold in 1897. These transitions were smooth at this time, and the extant records do not show any serious resistance to the government’s redoubled attempts at monetary centralization. A comprehensive discussion of these transitions, however, awaits further inquiry. 

Finally, through investigating the complex and organic process of nineteenth-century monetary reforms in Japan, this paper has also examined one way of conducting a global history. With the recent popularity of global historiography among historians, the topic of the physical interconnectedness of money, economy and people during the early-modern period in East Asia has been repeatedly emphasized.[104] However, it is also useful to focus on the comparable elements in other societies in East Asia. By examining multiple agents, such as money exchangers, governments, and commercial traders, similar studies are encouraged to explain the dynamics of change in East Asia, analyzing how each country moved towards a modern monetary system.[105] Only after doing so can we move to “establish measurement principles that don’t privilege one set of institutions over another set as necessary norms.”[106] More recent studies in monetary transformation in other East Asian countries have more or less shared such an approach.[107] With much fertile ground for historical interpretations of different contingencies in East Asian monetary transformations, the framework and methods used here and elsewhere may prove to be fruitful avenues for the future of monetary historiography.

 

 

 

 

 

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