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Paper Money in Japan
2-7 Kawase-gaisha Notes
Obverse side of a Tokyo kawase-gaisha note (a gold note,worth one ryo) The note was issued in 1869 to supply funds necessary for the promotion of Japan's fledgling modern industry.
Obverse side of a Yokohama kawase-gaisha note (worth 10 Mexican dollars in nickel-silver coins) This is a dollar-denominated kawase-gaisha note, convertible to nickel silver (Mexican silver dollar coins), issued for the convenience of Japanese merchants settling foreign trade payments. This type was issued only by the Yokohama Kawase-gaisha.

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To establish a route for the supply of funds to foster its fledgling industry, the Meiji Government set up the Ministry of Commerce (Tsushoshi) in February 1869 and, with investment from traditional money exchangers and wealthy merchants, established tsusho-gaisha to supervise private trading companies and promote industrial development and kawase-gaisha (financial institutions playing the role of present-day banks) to lend money to the private trading companies and the tsusho-gaisha. Kawase-gaisha were established in Tokyo, Yokohama, Niigata, Saikyo (now Kyoto), Osaka, Kobe, Otsu, and Tsuruga and placed under the control of the Ministry of Commerce.       The name kawase-gaisha may have originated because kawase-gaisha were engaged in kawase, or clearing of bills (the principal mode of finance in those days), or because the government officials put in charge of finance were called kawase-kata and the wealthy merchants who played key roles in the establishment of kawase-gaisha were entrusted with the job.       The notes were issued for the first time by the Osaka Kawase-gaisha in September 1869 and came in a variety of denominations: 1, 5, 10, 25, 50, and 100 ryo. These large-denomination notes seem to have been issued to meet the demand for higher-denomination notes in Osaka and other districts where industrial growth was planned. Given the purpose of their issue and their large denominations, the notes were circulated mainly among merchants and a limited group of wealthy and powerful people rather than widely used in ordinary transactions. In addition to these notes, some smaller denominations were issued as expedients to relieve a shortage of smaller currency, and some dollar-denominated notes were issued for convenience in settling foreign trade transactions. Taking into account the purpose of their issue and their limited circulation, it is correct to regard kawase-gaisha notes as differing from today's banknotes, though they can still be considered "banknotes" in the sense that they were issued by financial institutions equivalent to banks.       Kawase-gaisha notes were convertible, and since there were no regulations on convertible reserves, all the issuing institutions began issuing them in excess. In about a year, the notes issued exceeded five million ryo. In response, the government implemented a policy requiring total convertibility of reserves, setting an upper limit on the total amount of money issued based on the issuer's mimotokin (the pooled investment of its owners) to control the volume of money issued.       The businesses of the issuers of these notes, the kawase-gaisha, began to deteriorate after lenders began having trouble recovering their loans, and by 1872 almost all of them had been dissolved. Nevertheless, they had paved the way for the establishment of private banks and played an important part in the birth of modern private financial institutions in Japan.

Mari Ohnuki, Research Division 3, Institute for Monetary and Economic Studies, Bank of Japan Monetary and Economic Studies 18(1), Bank of Japan, 2000

References Akashi, Teruo, and Suzuki Norihisa, Nihon Kin'yu-shi (Monetary History of Japan), Vol. 1, Toyo Keizai Shimposha, 1958 (in Japanese). Asakura, Kokichi, Shimpen: Nihon Kin'yu-shi (Revised Monetary History of Japan), Nippon Keizai Hyoronsha, 1988 (in Japanese). Bank of Japan, Research Department, ed. Zuroku Nihon no Kahei (Japanese Money), Vol. 7, Toyo Keizai Shimposha, 1973 (in Japanese). Tamaki, Norio, Nihon Kin'yu-shi (Monetary History of Japan), Yuhikaku-Sensho, 1994 (in Japanese).