The Adjustment of the Inconvertible Paper Currency.— In the autumn of 1881, a great. split took place in the government, and as a result the present writer was transferred from the chair of the Minister of Home Affairt to that of the Minister of Finance. It was just the time when the depreciation of the paper money reached its lowest point and both the government and people were in a most uneasy mood. It was found that the amount of the government paper and of the bank notes in circulation at that time stood as follows: All these were inconvertible paper money. The government decided that unless some drastic measures be taken to dispose of them the state finance would soon come to ruin. It became clear in the eyes of the financial author ities that to accomplish the adjustment of the inconvertible paper money there was no other way than that side by side with the redemption of a portion of the paper money in circulation steps be taken to increase the specie reserve of the government preparatory to the resumption of specie payment. It was at first intended to adjust and redeem all the inconvertible notes issued by the government and national banks once for all, and establish a central bank having the sole privilege of issuing convertible notes. With that intention, investigations were made into the actual financial condition of the govern ment. It was found that 7,000,000 yen could be annually appropriated from the ordinary rev enue of the government toward the redemption of paper money and that there was a reserve fund amounting to about 55,000,000 yen. Of this sum about 19,000,000 yen had been loaned out, so that the amount at hand was but 36,000,000 yen. But as about 25,000,000 yen out of this consisted of bonds and 2,000,000 yen of bank shares and paper money, the amount of specie was no more than 8,000,000 yen. Further, even this amount existed in the account book only, for out of this, 3,000,000 yen were loaned out to certain foreigners, so that the amount of specie actually available for conversion was only about 5,000,000 yen. Nevertheless it was firmly be lieved that by utilizing the balance of revenue above referred to, and also by employing this specie reserve to advantage, the government should be able to carry out its scheme of re deeming paper money in about five years.
i In some quarters it was opined that it was unwise to accumulate and store specie, because specie would of itself naturally flow in if the paper money should be withdrawn and the currency decreased. Anticipating, however, the great difficulty that would attend the realization of the scheme of convertible notes, the govern ment adhered to the policy of accumulating and storing as much specie as possible.
The task of doing this, however, was not an easy one. The amount of the specie that re mained in the country on those days was ex tremely small, while the yearly output of gold and silver mines in the country was less than 400,000 yen. Moreover, hound up by the treaty, the government could not revise tariff to its advantage. On the other hand in view of the financial condition of the time, the country would suffer great disadvantage if foreign loans were resorted to. Under these circumstances the government came to the conclusion that the only way open was to try to bring in gold and silver from abroad by means of discount ing foreign bills of exchange accompanied by securities, and accordingly this scheme was adopted though there was no little opposition within the government itself.
It indeed required a great determination on the part of the government to accomplish the adjustment of the paper currency; for it was apparent with the rise in the value of paper money the prices would fall, leading to the dis appearance of the seeming prosperity of the country which then prevailed. Loud voices would naturally be raised against this policy from all quarters. To make it sure that no opposition would ever stop the carrying out of the government's scheme, the emperor's special sanction for this scheme was obtained.
The Adjustment of the Reserve Paper The first task was the adjustment of the reserve paper money. As before stated, the reserve paper money was issued for tem porarily meeting the deficit of revenue. It was thus not of a permanent nature, but all the same it had the evil result of increasing the amount of circulation of inconvertible notes.
In order to withdraw from circulation the amount thus utilized from the paper money re serve, certain changes were made in the method of making receipts and disbursements of the public revenue, as well as in the method of disbursing the expenditures of the government departments, so that thenceforth these dis bursements were all made at the exchequer, instead of having the amounts of the esti mated expenditures turned over in lump sums to the departmental authorities in the, early part of the fiscal year, as had been done before. These changes were effectual in giving the Treasury available funds. Yet further steps were taken toward the increase of the govern ment reserve by withdrawing the loans made out of the government reserve (in aid of industrial enterprises) and by selling the government bonds which were held by the Reserve Fund. The increased specie in the reserve obtained in this way was temporarily utilized as well as all the available funds in the Treasury for the withdrawal from circulation of the reserve paper money, the task being accomplished in January 1883. After this, whenever the govern ment was temporarily in need of funds, they issued short-term public loans in the form of the Treasury bills. The Treasury Bills Regula tions were issued in September 1884.
Economy in the State Expenditure and the Redemption of Paper Money.— The ad justment of the troubles connected with the temporary issue from the Paper Money Reserve was comparatively easy. But with regard to the adjustment of the troubles which existed in connection with the paper currency proper, the task was very much greater.
As was stated above, in October 1881, when the writer was appointed Minister of Finance, it was found that about 7,000,000 yen could be appropriated annually out of the ordinary revenue for the redemption of paper money. In order that this surplus should not be spent for any other object, the government decided that the state expenditures should not be further increased for the three years after the year 1882.