Japan’s Many Hansatsu Notes

There have been numerous instances in history where several different currencies circulated in the same place simultaneously. Forms of this come up in several settings. One is the variation where there is no clear money-issuing institution. The result is often the importation of foreign monies. Another variation is where there are numerous money-issuing entities, often in the form of a multitude of ‘banks of issue’ as existed in the United States in the 19th century and elsewhere. In Japan, while not issued by banks, but rather by merchants and local officials, there was also a multitude of monies coming in and out of existence and circulating simultaneously. Eventually, the system was scrapped as part of Japan’s modernization during the Meiji Restoration.

Monetary Conditions

The Tokugawa era, or Edo period, in Japan lasted from 1603 to 1868. During this period, shoguns governing Japan minted three coins, a gold ryō, a silver shu, and a copper or iron zeni. These circulated mostly in cities ruled by the shogun like Edo, Osaka, and Kyoto. Outside the cities, power was delegated and over two hundred smaller ‘domains’ had substantial autonomy in managing their own economic affairs.

In these places, especially those domains politically at odds with the shogun, the shoguns’ money was scarce. The result was a shortage of small-denomination money that set in by the 1660s and continued well into the 19th century. This created a problem for trade. While fragmented and agrarian, Tokugawa Japan was not a civilization of small self-sufficient cells; rather there was substantial trade taking place in cities, castle towns, and other settlements. Even peasants needed small-denomination money because they were not living off the land; rather, many cultivated crops for export elsewhere and lived off their share of the revenues.

Paper Money

A desperate need for payment instruments emerged and the issue was not sufficiently addressed by the central government. So, others had to improvise and aristocrats, temples, and merchants issued their own paper money. These began to appear in the first half of the 17th century. An issuance of these in around 1600 in the Ise Yamada area (modern day Mie prefecture) was perhaps the first. This initial issuance of paper money was meant to represent small change due to be paid in silver, but the notes began to circulate in their own right.

Merchants used the paper money they introduced to pay for goods they sought to export, not necessarily abroad but to other parts of the country, and the use of this paper money spread. Merchants in other parts of the Kansai region (the area including the metropolitan areas of modern Osaka, Kobe, Kyoto, and Nara) began issuing such money. Domains further in Western Japan sought to do so also, both to resolve the shortage of money in their fiefs and to finance their deficits.

The experience of Okayama, in Western Japan and quite close to Kansai, is illustrative. In 1654, this region was in dire straits following a flood and it began to explore issuing local paper money in 1670. Another flood damaged Okayama in 1673 and, at this inopportune time, the domain was charged its share of the cost of building a newly reconstructed imperial palace in 1675. These fiscal pressures prompted the domain to issue its first paper notes in 1679.

As it happens, local authorities in the domains were often barred from issuing their own money. The central government sought to limit printing of these paper monies by granting fixed-term licenses or imposing other regulations. These efforts did not work. Local authorities and merchant financiers partnered to issue paper money, called hansatsu (藩札) or literally ‘domain notes’.

Hansatsu banknotes (Source: Wikimedia Commons)

This approach allowed local governments to claim the currencies were purely private ventures though the domain governments were involved too. The domains did not always partner with local merchants to issue hansatsu; they often partnered with the most prosperous merchant houses in Osaka, the commercial center of Japan, instead. Nonetheless, these were still largely local currencies; each hansatsu generally circulated in a confined region and, as a result, there were many outstanding at the same time. Perhaps around 1,700 types of notes in all were issued.

Supporting their adoption, the hansatsu were typically backed by silver. To encourage adoption of its hansatsu, the government of Okayama exchanged silver for paper notes at a rate of 100:102, essentially giving people a 2% premium on their silver. This type of money was used to pay local samurai, locals paid their taxes in these notes, and private debts could be repaid in hansatsu too. Thus, in Okayama, use of the notes steadily picked up.

To reassert its control, the central government of Tokugawa Japan went as far as to ban the use of hansatsu in 1707. However, this caused a depression and the policy was abandoned in 1730 to revive the economy. Afterwards, domains that had previously issued hansatsu resumed their issuance and adoption hereafter became even more widespread.

Problems

With a surge that began after 1730, around 80% of local domains came to have their own paper hansatsu by the end of the Tokugawa shogunate in the mid-19th century. Some of these circulated outside their respective domains, if even to a limited extent. Nonetheless, this complicated the monetary situation. In the region of Bitchū, a relatively small part of Japan, there was a catalog of paper money printed in 1857 detailing the 173 different types of paper notes found in the area. Many of these were worth little and the catalog was created to petition the local authorities to withdraw some of the depreciated notes from circulation.

Yet, when local governments needed funds, they issued even more paper money; unsurprisingly given these circumstances, precious metal reserves backing the notes generally grew more slowly. To keep pace, domains still attempted to hoard silver reserves, including through all sorts of trade schemes. The government of Okayama, for example, monopolized the cotton trade in the 1730s with this aim in mind.

The hansatsu maneuvers went beyond schemes like this. Merchants, who printed the notes, agreed to issue more in exchange for advantages such as the right to export rice and other commodities they bought using the money. Merchants bought up grain from rural domains and shipped it to cities. They also bought ‘cash crops’ like cotton and tobacco which the sellers sold for readily-accepted money. This activity was so profitable that, with coordination of local officials, merchants were happy to fund the latter’s deficits with their printed money. This occurred despite the fact that, in some arrangements, specified merchants took responsibility for ensuring the convertibility of the local notes.

The value of hansatsu were thus linked to trade. When exports from a domain were high, and paid for in precious metal specie, the paper money would earn the confidence of the public. When exports fell, perhaps during a famine, the revenues from this trade would fall and confidence in paper money was undermined. A new money might then be issued to replace the old ones; this happened with the local paper currency of Sendai in the 1830s-50s and was rather commonplace. In Tamashima, local officials and merchants also introduced a new money in the mid-19th century to replace an unstable local monetary system. Indeed, the value of paper monies regularly collapsed and convertibility was suspended from time to time.

Replacement

Replacing the hansatsu with a new monetary system was not straightforward. For one, people were accustomed to the old paper money; even paper currencies that had collapsed in value kept being used. In Okayama for instance, a local currency continued to circulate at 40% of face value for decades after a new official currency was launched in 1799. That said, the new currency itself collapsed in the 1850s, falling from 64% of face value to 10% in 1854 after a series of disasters ranging from famines to floods and demands from the central government.

The over issuance of paper money contributed to inflation which may have had other causes as well. In the 1860s, the price level in Japan rose tremendously. A price index constructed by historian Yamamoto Yūzō suggests prices more than quadrupled between 1857 and 1867. This was likely driven by a major recoinage which devalued silver relative to gold but issuances of paper money also contributed.

Nonetheless, a sweeping reform was close at hand that would replace the old system with a new one. The new government of Emperor Meiji implemented the New Currency Act in 1871; under the law, a new yen was introduced as a unit of account and central government-issued paper notes, not redeemable into gold or silver, were issued. The use of hansatsu came to an end. New ‘national banks’ were permitted to issue paper notes in 1872 and a central bank, the Bank of Japan, was founded in 1882 and began to issue silver-backed notes in 1885. Their notes replaced the old government and national bank notes in 1899.

Lesson

In the 17th century, Japan was fragmented and in various parts of the country, money was in short supply. Distance between a region and the centers or power, whether geographic or political distance, has occasionally led to shortages of money. Yet, rarely does the economy resort to barter in these circumstances. Rather, shortages have often led to monetary improvisation. The insufficiency of barter is most notable in commercial life where money provides the efficient medium for trade. So, it is unsurprising that, in 17th century Japan, the result was the creation of new paper monies by merchants and by merchants and local governments in partnership.

More from the Tontine Coffee-House

Read about paper money across centuries of Chinese history and the role of the Bank of Japan during the country’s 20th century economic miracle. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.