The Value of the Yen as Defined by the 20 Yen Gold Coin

There is a gold coin. The old 20 yen gold coin. The year inscribed on it is the 3rd year of Meiji. However, the New Coinage Act, which established the denomination and fineness of this currency, was promulgated the following year, in the 4th year of Meiji, 1871.

The "Yen" Unit and the Meiji Enlightenment

On May 10th of the 4th year of Meiji, the New Coinage Act was promulgated. The quaternary counting system of ryō, bu, and shu came to an end, and the decimal system of yen, sen, and rin began. It was established that one old ryō was equal to one new yen.

So, why was it named "yen"? One theory is because of its round shape. Another is that it was modeled after the one-yuan silver coins used in Hong Kong. A third theory suggests there was an existing custom of calling ryō "en". These three theories coexist, and the matter remains unsettled. An anecdote tells of Ōkuma Shigenobu making a circle with his fingers, but its source is uncertain.

The factory for making this new currency was built in Kawasaki Village, Osaka. It was the Mint Bureau. When the mint in Hong Kong was closed, its machinery was purchased and installed there. An Englishman, Thomas William Kinder, was invited to be its director. His monthly salary was 1,045 yen, an exceptional sum that exceeded the 800 yen of Sanjō Sanetomi, the Grand Minister of State. Workers were required to cut off their topknots and wear Western-style clothing. This place was also an experimental ground for the Meiji Enlightenment.

The Promise of 1.5 Grams of Pure Gold

The New Coinage Act equated the value of one yen to 1.5 grams of pure gold. The old 20 yen gold coin was the highest denomination gold coin made based on this rule. The dragon design engraved on the obverse is said to be the work of the metal artist Kanō Natsuo.

However, this gold coin did not immediately become the basis of the nation's currency value. Silver coins continued to be used in practice at the treaty ports, and for a time the economy operated on a bimetallic standard of gold and silver. It would be some time before Japan adopted a gold standard system based solely on gold.

The Gold That Never Reached Japan

The gold standard was established in the 30th year of Meiji. Its foundation was the indemnity from the First Sino-Japanese War.

In the 28th year of Meiji, under the Treaty of Shimonoseki, the indemnity paid by Qing to Japan was 200 million Kuping taels, plus an additional 30 million taels for the retrocession of the Liaodong Peninsula. This amounted to approximately 364.07 million Japanese yen. However, Japan did not accept this indemnity in silver. On the proposal of Matsukata Masayoshi, Qing agreed to pay in British pounds, which could be converted to gold. This was to prevent the value of the received funds from diminishing due to the depreciation of silver.

Since Qing did not possess the gold, it borrowed from Russo-French and Anglo-German banks to make the payment. The collateral was the Qing state's maritime customs and salt taxes. And this indemnity was never transported to Japan. It was received in London as British currency and remained there as Japan's specie reserve.

The Value of the Yen, Halved

In March of the 30th year of Meiji, a new Coinage Law was promulgated. Here, the value of one yen was set at three-quarters of a gram (0.75g) of pure gold. This was exactly half of the 1.5 grams of pure gold established in the 4th year of Meiji.

This is generally seen not as a devaluation, but rather as an adjustment of the official rate to the actual market rate. So, what was the gold standard for? It was not to demonstrate national prestige. It was a "qualification" for borrowing money from overseas.

In the 32nd year of Meiji, Japan attempted to raise 10 million pounds through a government bond issue in London. However, subscriptions were sluggish, as bankers continued to doubt whether Japan could maintain the gold standard.