The Indemnity That Never Reached Japan

Wealth That Moved on a Ledger

Under the Treaty of Shimonoseki in 1895, the Qing dynasty agreed to pay a war indemnity to Japan. The sum was 200 million Kuping taels, plus an additional amount for the retrocession of the Liaodong Peninsula, totaling 231.5 million taels. This was equivalent to approximately 360 million Japanese yen, a sum more than four times Japan's national annual revenue of about 80 million yen at the time.

However, this indemnity was not transported to Japan. It was converted into British currency and received in London. This was the first time that national wealth was transferred not in chests of gold coins, but as a figure in a ledger.

The Gold Standard as a Qualification

In London, the indemnity, still in British currency, became Japan's specie reserve. The gold was never transported to Japan, instead directly becoming the reserve fund for the gold standard.

The Coinage Act was promulgated in March 1897 and enacted in October. One yen was defined as three-quarters of a gram of pure gold. Since the yen of 1871 had been one and a half grams of pure gold, the par value was exactly halved. This is generally seen not as a devaluation, but rather as an adjustment of the official value to the actual market rate.

So why was the gold standard necessary? It was not for prestige. It was a qualification for borrowing from abroad. Japan had joined the global circle of the gold standard.

Credit for Borrowing

The costs of the First Sino-Japanese War, totaling 233.4 million yen, were covered by loans from the Bank of Japan and domestic war bonds. Not a single foreign bond was issued. Since the beginning of the Meiji era, the government had been wary of foreign capital infringing on its sovereignty and had consistently avoided borrowing from abroad.

However, after establishing the gold standard, Japan issued a 4% sterling bond in London in June 1899. The target was 10 million pounds, but subscriptions were sluggish, and the actual amount raised was only 8.6 million pounds. London bankers remained skeptical about whether Japan could maintain the gold standard.

Incidentally, the Qing dynasty also lacked the funds to pay the indemnity. They paid it by borrowing from Russian-French and Anglo-German banks. The collateral for these loans was the Qing's maritime customs duties and salt tax. The foundation of Japan's gold was thus built on the Qing's customs and salt taxes.

The Yen Across the Seas

Having adopted the gold standard, the yen began to cross the seas. In 1899, the Bank of Taiwan was established and began operations as a special bank issuing currency for Taiwan. Its founding charter stated the goal of expanding business into the regions of Southern Qing and the islands of the South Seas.

From 1902, the Dai-Ichi Bank issued Dai-Ichi Bank notes in the Korean Empire. It obtained the right to issue official banknotes for Korea, effectively becoming its central bank. The portrait printed on these banknotes was that of Shibusawa Eiichi. The 10,000-yen note of the Reiwa era is the second time Shibusawa's face has appeared on a banknote. The first time was on the currency of a country that Japan was about to annex.