NRI Papers
No.87 March 1, 2005
  Government Bonds in the Meiji Restoration Period  
Toshiki TOMITA
      Since we entered the 21st century, the financial situation in Japan has been more exacerbated than that during World War II. A status that is equivalent to that during the period of the Meiji Restoration has been ongoing. Moreover, the international credit rating of Japanese government bonds has been shaky, which also resembles that during the Meiji Restoration period.
      In 1870, Japan's first government bonds were issued in pounds to raise funds to construct railway facilities. Despite the efforts to offer all customs revenues as security, poor conditions were applied to the issue such as a maturity period of 13 years and an interest rate of 9 percent, which ranked just better than that of Honduras. In 1873, a second set of government bonds, this time to dispose of chitsuroku (stipends, etc.), was issued in pounds with a maturity period of 25 years and was based on the security of rice. While the interest rate was reduced to 7 percent, it was higher than the rates applied to Argentine and Chilean bonds.
      Conversion from goyokin funds, which were secretly raised, to government bonds that were publicly traded, played a major role in achieving the modernization of Japan. The processes that led toward the modernization of Japan include the breakup of the old regime. Specifically, these processes consisted of the elimination of former clan notes and chitsuroku, the consolidation of government notes, which were issued in a large quantity for the Boshin War, the establishment of private-sector banks and the promotion of industry. All of these processes progressed with an extremely close relationship with the issuance of government bonds.
      In 1868, the initial year of the restoration, the government was dependent upon government notes and loans for 87 percent of its expenditures. The Meiji government first established tax collection authority and implemented a land tax reform to obtain tax revenues in cash. In terms of expenditures, the government significantly reduced chitsuroku payments to the former shizoku (samurai). Through these efforts, a surplus (primary surplus) was achieved in 1874 and 1875, with the exception of debt redemption for principal and interest.
      While chitsuroku was paid in accordance with koku (rice as the tax base) before the restoration and was equivalent to 34.62 million yen, 12.83 million yen was paid as interest on government bonds in 1877. This means that a large-scale reduction of 60 percent of vested rights was implemented in only ten years.
I What We Can Learn from the Meiji Restoration Period
II Currency System in Inextricable Disarray: Are Cabinet Notes (Dajokansatsu) Currency or Debt?
III From Goyokin Funds to Government Bonds: No Government Bonds Available Is Evidence of a Tyrannical Government
IV 9-Percent Interest-Bearing Bonds in English Currency: Japan's First Government Bonds
V Resolving the Use of Former Clan Bonds by Government Compensation Bonds (Kofu Kosai): The First Domestic Government Bonds
VI Establishment of a National Bank by Issuing Public Bonds in Exchange for Gold Notes (Kinsatsu) and Issuing Convertible Notes
VII Handling of Returned Chitsuroku by Chitsuroku Public Bonds
VIII 7-Percent Interest-Bearing Public Bonds in Foreign Currency: Is Credit Gradually Flourishing?
IX Final Disposal of Chitsuroku: Reduced by 60 Percent in Ten Years after the Restoration
X The Seinan War and Inflation


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