New Currency Regulation (新貨条例)

Established on June 17, 1871, the New Currency Regulation was Japan's first coinage act of modern times. The "Yen" (currency) was officially adopted as the Japanese unit of currency. It was abolished when a new coinage act was enacted on October 1, 1897.

Problems in 1868
Although the currency system in the Edo period had been kept in almost the same manner by the new government after Meiji Restoration, there were problems including organizing han bills (bills usable only in a particular feudal clan) (further, prefectural bills taken over from the han bills) issued by each domain independently and integrating koban (former Japanese oval gold coin) (Keisu kahei [currency by table]) in eastern Japan and chogin (collective term of silver) (Hyodo kahei [currency valued by weight]) in western Japan in order to establish a centralized state. Besides, the currency system partially using quaternary (1 ryo was equal to 4 bu, and 1bu was equal to 4 shu.) was too difficult for foreigners to understand and its improvement was required.

In those days, the new government was caught in serious financial difficulties not only because a great amount of gold flowed outside the country due to the different exchange ratios between gold and silver at home and abroad, but also because the expenses for Boshin Civil War and the encouragement of new industry was required. In order to secure a large budget, a lot of inconvertible paper currency, Dajokan-satsu (state bill) 5 types; 10 ryo, 5 ryo, 1 ryo, 1 bu, and 1 shu), introduced by an accountant, Kosei YURI (a feudal retainer of the Fukui clan, Kosei YURI later) was issued and the credibility of the government currency significantly fell off. It is said that the value of Dajokan-satsu against 100 ryo of gold net price went down from 120 ryo to 150 ryo.

Because a lot of forged gold and silver coins had circulated since the Edo period as coin casting technology was outdated and immature and they were used for trade settlement, a lot of complaints were made by foreign countries. The state control of currency was an urgent task. In addition, round shaped coins were needed since square coins drastically deteriorated as their four corners became worn through circulation.

Currency system reform led by OKUMA
In order to resolve the discrepancy mentioned above, Mint Bureau (Japan) was established by the petition of Shigenobu OKUMA, an officer of Foreign Affairs Council, an accountant and Goyo-gakari (a general affairs official of the Imperial Household) in February 1869. After the downfall of Mioka, OKUMA led the currency system reform. In March 1869, OKUMA petitioned Sanetomi SANJO, a hosho (chief administrative officer) to change the currency unit, from ryo to yen, adopting the decimal system, and to change the shape of coins, from square to round, and then all of them were approved. However, it took two years after the approval to put the new currency "yen" into effect. It was because it took a lot of time to recover from the destruction of facilities by fire (in November 1869) at the planned site of Mint Bureau which was to produce new currencies, and to clean up fake money and inconvertible paper currencies circulating in the market.

OKUMA, who became the vice governor of accounting, forced to circulate Dajokan-satsu with his edict to promise the Dajokan-satsu could be exchanged for the new currencies to be prepared, whereas he prohibited exchanging Dajokan-satsu for specie money. However, the value of Dajokan-satsu continuously dropped to be 185 ryo against 100 ryo of specie money in June 1869. In addition, OKUMA, who became Okura no taifu (a senior assistant minister of the Ministry of Treasury) (became Minbu-taifu [Senior Ministerial Assistant of Popular Affairs] and Sangi [councilor) later]), rushed to collect forged old 2 bu bills (a half of 1 ryo) swamped with complaints from abroad. In November, in addition to Dajokan-satsu which had only large bills, small bills (2 bu, 1 bu, 2 shu and 1 shu) called "Minbusho (Ministry of Popular Affairs)-satsu (bill)" were issued and circulated for convenience. By those efforts, the value of Dajokan-satsu became almost the same as that of specie money in 1870, regaining its trust.

However, since fake Dajokan-satsu started to circulate, it was urgent need to issue elaborate bills to avoid forgery. OKUMA requested a company in the North German Confederation to print bills and started to issue Meiji Tsuho (the new paper notes, Germanic bills).

The Mint, which was established in Osaka, started its operation on April 4, 1871. After buying state-of-the-art minting machines from Hong Kong, a modern way of minting currency was introduced to prevent forgery. Five types of Japanese gold coin (20 yen, 10 yen, 5 yen, 2 yen and 1 yen) as the standard money, one type of Japanese silver coin (1 yen) as subsidiary money, four types of Japanese silver coin (50 sen, 20 sen, 10 sen and 5 sen), and four types of Japanese subsidiary money (2 sen, 1 sen, kinaka coin (a half mon) and 1 rin) were issued. The old currencies (Manei-koban-kin, Kanei-tsuho, Tenpo-tsuho and others) were exchanged for the new ones since December, 1871.

Nine types of paper currencies, Meiji-tsuho (100 yen, 50 yen, 10 yen, 5 yen, 2 yen, 1 yen, a half yen, 20 sen and 10 sen) were issued (they later came to be exchanged for old han bills or Dajokan-satsu).

Establishment of New Currency Regulation

Although the new currency system was prepared for its establishment because minting new currencies started in the Mint, it was not decided yet whether standard money should be gold or silver. As mentioned above, gold was insufficient because a lot of gold had flowed outside the country since the end of the Edo period. In addition, although OKUMA was considering bimetallism should be introduced as "nickel silver (Mexican dollar)"-based transaction was normal in Yokohama City as well as many other Asian countries, he decided the gold standard system would be introduced based on the proposal, "now, most countries are going to the gold standard system." by Hirobumi ITO, Okura no shofu (Junior Assistant Minister of the Ministry of the Treasury) and Minbu shohu (Junior Assistant Minister of Popular Affairs), who was on a business trip to the United States at that time.

Thus, "New Currency Regulation" was declared by Dajo-kan (Grand Council of State) on May 10, 1871.

The standard of currency unit was changed from "ryo" to "yen" (1 ryo to 1 yen).

The old currency was gradually abolished.

The supplementary unit of currency, "sen" and "rin" were introduced. The decimal system was used; 100 sen was equal to 1 yen, and 10 rin was equal to 1 sen.

Gold coin was specified as the standard money, and 1 yen gold coin as the standard coin (gold standard system).

The gold content of 1 yen gold coin was specified as 1.5-gram to pure gold 2 bu (it was equivalent to 1 U.S. dollar).

Therefore, the currency system became more understandable, since 1 ryo became 1 yen, which was also equivalent to 1 U.S. dollar. In addition, the national bank system of the United States was introduced by ITO's proposal, and "National Bank (Meiji)" (despite the name, it was a private bank), established by the regulation of national bank enacted in 1872 had a role to issue paper money.

New paper money (Meiji Tsuho) started to be exchanged for old han bills, Dajokan-satsu and Minbusho-satsu (money issued by Ministry of Popular Affairs) in February 1872, and most of them had been collected by 1879.

Virtual bimetallism
Although the New Currency Regulation stipulated the gold standard system, bimetallism was practically used since the gold standard system wa snot put into practice because of the currency circumstances at home and abroad.

As ITO's proposal, though the gold standard system was becoming a mainstream in Europe and the United States at that time, Asian countries including Qing were still a silver-oriented economic area and nickel silver (Mexican dollar silver coin) was used for foreign trade. Then, on the advice of Oriental Bank of the U.K., 1 yen silver coins (called "silver trade dollar" later) were minted for convenience in addition to 1 yen gold coins as the standard money and the use of them only in the ports open to foreign countries was permitted without limitation. It means that bimetallism was practically adopted, though the New Currency Regulation announced the gold standard system. In fact, as silver price dropped since around 1873, more gold coins flowed outside the country. In 1875, though 1 yen silver coin content (silver content percentage) had been equivalent to that of Mexico dollar, it became equivalent to silver trade coins of the U.S. dollar, called "silver trade dollar" formally, and was handled as de facto standard money (New Currency Regulation was renamed "The Currency Act").

Around 1877, the amount of silver coins in circulation exceeded that of gold coins in the market, so Okura-kyo (Minister of the Treasury), OKUMA proposed to introduce bimetallism. In 1878, the use of 1 yen silver coins without limitation was permitted not only in the ports open to foreign countries but also any places in Japan. Bimetallism completely replaced the previous system notionally by this movement.

However, due to the revision of the regulation of national bank in 1876, it was virtually permitted to issue inconvertible paper currency, and inflation caused by issuing inconvertible paper currency repeatedly in accordance with increasing war spending for Seinan War rapidly progressed. Due to further outflow of gold and silver and the increasing hoard of them, the Matsukata deflation policy (also known as the Matsukata finance, a financial measure to induce deflation to eliminate inflation generated by raising funds for war cost of the Seinan War) came in. After the downfall of OKUMA due to political change in 1881, by ultra-reduced budget led by Masayoshi MATSUKATA, who became Okura-kyo (Minister of the Treasury) (became Minister of Finance in 1884), and the exclusive issuance of paper money in accordance with the establishment of the Bank of Japan, silver was well prepared and the silver standard system started in 1885.

The gold standard system was further studied under MATSUKATA's leadership and, using reparations from the Sino-Japanese War to build up the necessary gold reserves, the gold standard system was eventually enacted and implemented in 1897. (The value of the yen was devalued to 0.75 g of gold, half its previous value.)