Thus all the inconvertible paper money in Japan was adjusted, and to-day only specie and the convertible notes issued by the Bank of Japan are in circulation.
The Effects of the Adjustment of Paper Money on the Finance of Japan.—As will be seen from the foregoing survey, prices fell to their normal standard and no fluctuations took place; the rate of interest became less than 10 per cent on an average after 1886; the govern ment bonds were always quoted above their face-value; while the export trade of the coun try steadily increased, so much so that compared with that of 1886, 1889 showed an increase of 63 per cent and compared with that of 1885 an increase of 88 per cent. As for the banking and different industries they also became very prosperous. See BANKING SYSTEM.
The amount of capital invested in banks and different industrial and commercial com panies increased two and a half fold in five years. If banks are excluded, the increase was four fold. The businesses that made especially striding progress during this period were rail roads and spinning mills. Other industries also showed a tendency of steady advance, and on the whole the busmess situation presented a very favorable prospect.
The adjustment or withdrawal of non-con vertible paper money was accomplished in such circumstances. But whatever may be said nominally, the task was effected on the basis of silver conversion and the country, henceforth, became one of de facto silver standard.
The necessity had been foreseen of the country sooner or later the gold standard system, in order that it might keep pace with the world's tendency and that it might enter the international circle of common economics. But the step could not be im mediately taken at the time as silver was still the principal currency in the neighboring coun tries, while bimetalism had not yet lost its in fluence with not a few countries of Europe and America. Besides the adoption of the gold standard required a large gold reserve, which in the prevailing circumstances was dif ficult to obtain. For this reason, the country was obliged temporarily to adopt in practice a silver standard thereby to accomplish the with drawal of paper money by exchanging it for silver.
In looking back to the price of silver in modern times, it is seen that the ratio between gold and silver prior to 1873 was fairly stable at about 1 to 15.5. From about 1871 the world's production of silver greatly increased, this being almost synchronous with the advent of the new German Empire. That country, in
its endeavors to reform and unify its system of currency, saw the advisability of replacing silver with gold, and stopped its free coinage of silver by enacting a new currency law. In 1873 Germany finally put the gold standard system in force and began to dispose of large quantities of silver. This gave rise to a powerful tendency for the depreciation of silver. In consequence, many countries of Europe and America, which had hitherto had in force a bimetallic standard, began to feel the danger of being forced to a position of prac tically using the silver standard system. A change of the currency system to a gold stand ard then became infectious among these coun tries, some of them adopting it immediately, others ceasing the free coining of silver, all running to the policy of absorbing gold to the rejection of silver. The pro-gold-anti-silver policy of these countries resulted naturally in more and more pushing down the price of sil ver, so that in 1876 the ratio between gold and silver came to stand at 1 to 17.88, an average for that year. This aroused the countries pro ducing or possessing large quantities of silver to an effort to uphold the price of that metal. In 1878 the United States enacted the Bland Law and tried to stem the downward tendency of silver by buying and coining it. The re public went further in 1890 and replaced the Bland Law with the Sherman Law, which gave the government the power to buy up a larger quantity of silver. For a time this had the effect of slackening the fall of silver, even of recovering its price to some extent. But the great force of tide was not to be resisted by artificial means, and in 1891 the ratio fell on an average to 1 to 20.9, which still further went down to 1 to 23.72 in 1893, with a threatening prospect that there would be no end to the de preciation of silver. It had, then, become clear that there was no longer any hope for the future of silver and the countries which had been looking on began to act, some of them stopping the free coinage of silver, and others adopting gold standard. In 1893 the United States repealed the Sherman Law, and also British India, which had hitherto been a great silver using country stopped the free coinage of the metal, the latter going so far as to charge a duty of 5 per cent on its importation the fol lowing year. Its downward career continuing, silver came to stand. in 1894 on an average at the ratio of 32.56 against 1 of gold.