On Large-Scale Monetary Operations in the Japanese Occupied Territories During the Pacific War

Abstract

This chapter demonstrates how wartime seigniorage benefits for the occupation forces and postwar withdrawal costs for the defeated government were balanced in large-scale monetary operations in the Japanese occupied territories during the Pacific War (from December 1941 to August 1945). The Japanese government financed war expenses locally by two methods. First, the government forced extemporaneously installed reserve banks in north/central China and the southern regions (Southeast Asia) to issue enormous quantities of banknotes. Second, it requested existing central banks in Manchuria, Indochina, and Thailand to underwrite Japanese government debts by issuing legal tender. In the former territories with high inflation rates, poor circulation of reserve banknotes limited the purchasing power of the occupation forces, but the cost to the postwar government of withdrawing banknotes was minimal. In the latter territories with relatively mild inflation rates, however, good circulation of legal tender generated substantial seigniorage for the occupation forces, but there were substantial costs to the defeated government of repaying its liabilities to the central banks of the previous territories.