ABSTRACT
AT the beginning of the new era (Meiji), the lack of an organized banking system was keenly felt by the people and by the Government, which suffered greatly from the confused state of its depreciated paper currency. In 1870, the Vice-Minister of Finance, Mr. Ito (now Marquis) went to the United States of America to investigate the banking system of that country. One result of this visit was his advice to adopt the system of national banks which he found there. Though some approved of the recommendation, many opposed it on the ground that the system was risky and unsuited to the needs of the country. Its opponents upheld the principle of a full gold reserve, and though the subject was hotly discussed, no practical result was reached. In 1871, a scheme of setting up a bank of issue with 7,000,000 yen capital was considered by the Tokio Chamber of Commerce. But the difficulty of getting the necessary funds frustrated the scheme. On his return in the same year, Mr. Ito urged the necessity and advantage of the American system, and his views were finally adopted. Out of this decision, in November, 1872, came the National Bank Act, being No. 349 of the laws of that year. This law is what is now designated as the old National Bank Act. Under it, banks were allowed to issue notes convertible in gold, holding Government bonds issued for the redemption of Government paper notes as the basis, to sixty per cent. of the capital, which was not to be less than 50,000 yen. This may be described as a compromise between the American and the gold reserve systems, fulfilling at the same time the purpose of redeeming the Government paper notes with the bond, and with this bond as the basis of banking, issuing convertible notes, which were to be finally converted into gold when the time for redemption of these bonds arrived. However, contrary to expectation, this many-sided and ingenious scheme ended in utter failure, and but four banks were formed under the act. Only 1,420,000 yen of bank notes were actually received by them, out of 15,000,000 yen which were printed in New York beforehand. The cause of this failure was the depreciation of paper notes in general, on account of the constant efflux of bullion due to the importation of goods and the overissue of Government notes, as well as to the fact of the bank notes being immediately convertible into gold. * This latter facility operated so that the Second National Bank, located in Yokohama, the chief commercial port, could not issue even one yen of its notes. Consequently, the amount of bank notes in actual circulation, which stood at 1,356,979 yen in June, 1874, made a rapid descent to 62,456 yen in 1876, regardless of the exertions of the Government to keep up the volume of the circulation. With such a limited amount of currency and a very slender total of deposits, the only source of profit for the banks was the interest of six per cent., accruing from the Government bonds, while the market rate of interest was above ten per cent. The four existing banks presented a petition to the Government in March, 1875, to allow their notes to be convertible into Government notes only. This being equivalent to a return to the former state of non-convertibility, the Government hesitated, but in order to give relief to the petitioners, the Government issued its notes, which were inconvertible, to the amount of one-half of the issue of the Bank, a corresponding amount of bank notes being paid into the Exchequer. In 1876, the depreciation of paper money went from bad to worse † and the difficulty still increasing, the banks again petitioned the Government to exchange the remaining half of their notes for Government paper money. To this the Government acceded, and the scheme, so full of promise, fell through.
