During the period just mentioned, however, the government had to defray considerable ex traordinary expenditures owing to the outbreak of cholera throughout the country, the occur rence of troubles with Korea and the consequent expansion of armament, and some other affairs. Besides, after 1882 on account of the general dullness of trade, the government revenue markedly decreased. For instance, in 1833 the revenue decreased by as much as 2,000,000 yen in saki tax alone. Thus having found it im possible to carry out the prearranged plan, the government took measures to increase its revenue by means of new taxes. Thus in 1882 the government first levied stamp duties on patent medicines, and license tax on the brokers of the rice-exchange and the stock exchange, and revised saki and tobacco taxes; and in 1885 taxes on soy and confectionery were levied for the first time. Part of the surplus of the revenue which was secured through these means was devoted to the re demption of the paper money, while the re mainder was added to the reserve fund with the object of employing it for securing the im portation of specie from abroad. The amount employed in these ways for the adjustment of the paper money during the five years from 1881 to 1885 was as follows: Yen The amount directly employed in the redemp tion of the paper money 13,640.000 The amount added to the reserve fund 26,466.020 Total 40,106.828 The direct redemption of the paper money with part of the surplus of the revenue was made only till 1883. It was .abandoned after 1884, as the difference of paper and silver in price disappeared, and all the surplus of the revenue was added to the reserve fund.
The Discounting Operations of Foreign Bills of Exchange and the Accumulation of Reserve The reserve fund so fre quently referred to above originated in the government's learning, through the trying finan cial experience of the first years following the Restoration, the Importance of creating a fund during normal times, and also because there was the need of such a fund to enable the gov ernment to resume specie payment. The fund was commenced and efforts were made to aug ment it by investment. In 1878, 20,000,000 yen were set aside as the sinking fund, out of the reserve fund, with the purpose of investing the amount in government bonds in order to apply the interest accruing therefrom to paying off the principal and interest of the public debt. In 1881 the total amount of the reserve fund possessed by the government was more than 55,000,000 yen, the reserve fund proper and the sinking fund being counted together. In Au gust 1882, the government decided to purchase specie with the government bonds constituting the sinking fund, and since then the sinking fund existed in name only. As the amount of specie in the reserve fund which was possessed by the government in 1882 was only about 5,000,000 yen, the attempt was now made to increase it with the specie obtained by discount ing foreign bills of exchange.
It was in 1880 that the government first engaged in transactions connected with foreign bills of exchange by establishing the Yokohoma Specie Bank and entrusting to it the sum of 3,000,000 yen in. order that it might discount
foreign bills of exchange on the security of exported goods, at the request of mercantile companies engaged in the direct export trade, The main object of thus engaging in discount ing foreign bills of exchange was to encourage, on the one hand, the direct export trade, and on the other to secure specie — it being the object of the government to use the specie thus obtained in paying off its foreign expenses. In those early days, however, the business con nected with the foreign bills of exchange being entirely new, and the whole thing being mis managed, there arose various evils connected with it, so that the result was far from ac complishing the object sought. The govern ment thus not only failed to accomplish the absorption of specie, but had even to sustain losses, owing to the fact that the advances made often remained unpaid long after the expiration of the term of maturity. The causes of this failure on the part of the government, in its first experience connected with foreign bills of exchange, appear to have been: (1) The laxity in the inspection of goods before discounting the bills of exchange, so that goods of inferior quality were sent abroad which did not com mand the expected price. (2) The business con nected with the disposal of exported goods being mismanaged, led to uncertainties and irregularities in their sales, causing delay in the payment of bills. (3) Since the money ad vanced in discounting the foreign bills of ex change was in paper money, it was arranged that the collection of those bills abroad should also take place in terms of paper money ; so that the price realized abroad on the goods exported was, in paying for these bills, con verted into the terms of paper money according to the rate of exchange prevailing at the time. And this process took place at a time when the paper currency was rapidly depreciating. As a result, the export merchants became engrossed in the subjects of fluctuations in the value of paper money — regarding their business as one of speculation rather than of sober, legitimate transaction, in the hope of realizing certain chance profits from the fluctuation of paper money.
Accordingly the system of for eign bills of exchange was revised so as to do away with the above-mentioned evils and, the revised system was put into operation after March 1882. The following were the chief points of revision: (1) The Specie Bank to make a very strict examination of the goods on whose security the bills were discounted. (2) The Japanese consulate at the place whither the goods were sent to be entrusted with their supervision, so that they were not to be de livered until after the payments were made for the bills of exchange. (3) The bills to be made payable in foreign currency at the rate pre viously determined in accordance with the rate of foreign exchange ruling on the day Of dis counting them.