If you were shown a paper banknote with ‘The Japanese Government’ printed on top, albeit in English, and was for a sum of 500 pesos, you would probably be left scratching your head wondering from where this strange money came. A sensible person would presume it was just some kind of novelty; in a sense, that is exactly what it is today. However, in the middle of the last century, there briefly was such a thing as a ‘Japanese peso’ and it was not the currency of Japan, but rather of the Philippines. The currency was introduced following the Japanese invasion of the islands, then an American territory, during the Second World War.
Occupation-era Public Finance
The Philippines had been an American territory since control over it was wrested from the Spanish in 1898. By 1935, however, the transition to independence had begun with the passage of the Tydings–McDuffie Act in the US. The legislation prompted the creation of a new constitution for the Philippines, which officially became the Commonwealth of the Philippines. It also started a ten-year transition period, by the end of which the Philippines would be independent. The islands had their own coinage by then, though their composition and the monetary standard were dictated by the American Congress; the Philippine peso was pegged 2:1 to the US dollar and was divided into 100 centavos.
The story of the Japanese peso began on December 8, 1941, when the Japanese invasion of the Philippines began, just one day after the attack on Pearl Harbor. The most senior commander of the American forces there, General Douglas MacArthur, was evacuated to Australia and the islands were surrendered in May 1942. The Japanese replaced the old Commonwealth currency with new ‘Japanese pesos’ issued by the Southern Development Bank, the de-facto central bank for Japan’s new territorial possessions, from Malaya to the Philippines. They were not the only new currency to be printed in the Philippines during the occupation. The government-in-exile authorized the printing of ‘emergency circulating notes’ which did manage to circulate in the southern Philippines though the Japanese puppet government in Manila, the capital, banned their use.
Under the new monetary system established by the Japanese, the Southern Development Bank was charged with printing new banknotes and functioning as a depository for local banks. These banks in the Philippines could deposit funds with the Southern Development Bank at 3.5%. Reflecting the easy-money policies and shaky economy of the period, deposits at the central bank grew quickly during the occupation. In September 1943, 152 million pesos was deposited. Within a month this grew to 186 million and 200 million by January 1944. This growth in bank reserves mirrored the overall growth of the money supply. Total deposits of the banking system in the Philippines grew to over 310 million pesos by the end of September 1943, as compared to just 220 million before the war, 40% growth over the course of less than two years.
The period’s rather extreme growth in the money supply was complemented by the shaky fiscal footing of the puppet government, led by President Jose Laurel. In 1944, for example, the state budget totaled 115 million pesos but tax revenue only amounted to 55 million. To cover the shortfall, a 60 million peso bond issue was authorized. Indeed, the size of the deficit exceeded the entire tax collection for that year. It didn’t stop there; the bond issue was later upsized to 100 million pesos early in the year. The first 20 million pesos of bonds were issued in March 1944. The 20-year semiannual pay bonds carried a 4% coupon. Collectors today can acquire these Japanese peso bonds to complement their collections of defunct Japanese peso banknotes.
There was some evidence that all this was rather inflationary. Larger 100-peso banknotes were introduced early in 1944, as were 500 and 1000-peso notes shortly thereafter. Up until then, the 10-peso banknote had been the highest denomination available. Further, a new financial regulator, the Bureau of Credits and Investments, was established by the occupation regime to control inflation. It was charged with curbing financial excess, regulating the money supply, and maintaining a healthy balance between economic output and consumption. Peculiarly, these new institutions established by the puppet government may have helped build up the expertise of local bureaucrats in time for independence after the war.
Thus, there was some attempt by the civilian administration to stabilize the economic situation. The government planned for the creation of a new Central Bank of the Philippines. The law establishing it was approved in March 1944 though it would not come to fruition; the American reconquest of the islands began later that year. The new central bank would have had an initial capitalization of 50 million pesos and was tasked with issuing yet another new currency. With regard to curbing inflation, the bank was to maintain a fund in Japanese yen amounting to no less than 25% of the currency in circulation. The fund would be used to sustain a peg to the yen.
The Japanese peso was just one of the many ‘invasion currencies’ issued by the Japanese authorities and their allies in Southeast Asia. In the Dutch East Indies, there was the ‘Japanese gulden’, in Burma there were ‘Japanese rupees’. In New Guinea and the Solomon Islands, British colonial possessions, they issued ‘Japanese shillings’ and ‘Japanese dollars’ were printed in British Malaya.
These territories were members of Greater East Asia Co-Prosperity Sphere, a pan-Asian community of nations under Japanese leadership. The organization had economic, as well as political and military significance. The organization was crafted to enable Japanese economic self-sufficiency by securing critical resources, like oil from the Dutch East Indies, for Japanese use. The new currencies of these territories comprised a kind of briefly lived ‘yen zone’. Amidst the high inflation that accompanied the issuance of the Japanese pesos in the Philippines, the US military air dropped peso notes with “The Co-prosperity Sphere: What is it worth?” printed over them as a kind of propaganda leaflet.
The end of the war saw the end of the Japanese pesos … or did it? There were still millions of these notes lying around and Filipinos had used them during the war as they would any other currency. After all, while the US-backed government-in-exile had continued to print money, referred to as ‘guerilla-pesos’, the Japanese occupiers had prohibited their use. Many Filipino individuals and companies continued to hold on to the Japanese pesos hoping that they might be redeemed for modern Philippines pesos after the war. One organization, called the ‘Japanese War Notes Claimants Association of the Philippines’ (JAPWANCAP) petitioned for holders of the wartime notes to be compensated.
As for JAPWANCAP’s claims, the Japanese government paid reparations to the Philippines government following the Treaty of San Francisco, a treaty between Japan and the Allies signed in 1952. However, no portion of these funds went to compensate holders of the old notes. In 1967, the organization launched a lawsuit against the US government but the United States Court of Federal Claims dismissed the suit; by then, it was beyond the statute of limitations. JAPWANCAP’s holdings of the old notes totaled 3.5 billion pesos, money that today is nothing more than a novelty.
Given the outcome of the Second World War, the end for the Japanese pesos and other Japanese ‘invasion money’ came swiftly. However, their creation was almost just as rapid. Examining the monetary system and economic condition of the Philippines under Japanese occupation reveals just how quickly an economic system can be rebuilt, even if with mixed results. The new currency, the Central Bank of the Philippines, and the Bureau of Credits and Investments were all created in just under three years, only to be dismantled and the infrastructure for economic management rebuilt again after the war, this time under an independent Philippines.
1. de las Alas, Antonio. “Southern Development Bank.” Diary of Antonio De Las Alas, The Philippine Diary Project, 31 Aug. 1945.
2. Durfee, James Randall. The Japanese War Notes Claimants Association of the Philippines, Inc. (Japwancap, Inc.) v. the United States. Justia Law, 17 Feb. 1967.
3. Japanese Invasion Money Philippines. The Australian War Memorial.
4. Office of Strategic Services. Programs of Japan in the Philippines. Department of the Army, 1944. Extracts from short wave radio broadcasts.
5. “Philippine Japanese Invasion Notes with JAPWANCAP Stamp.” The Numismatic Society of South Australia, 19 Sept. 2015.