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.
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Notes
- 1.
It is assumed that tax revenues were first allocated to the general account with the remainder appropriated to the EME special account. In the years 1943–1945, 142.3 billion yen out of 149.6 billion yen was covered by government debts.
- 2.
As implied by chapter “Central Banknotes and Black Markets: The Case of the Japanese Economy During and Immediately After World War II”, it is assumed that demand for BOJ notes from the formal economy was 10% of nominal GNE.
- 3.
In South China, including Hong Kong, military scrip was employed as a payment instrument until the end of the war (August 1945). Outstanding scrip amounted to 42.7 thousand yen and was small relative to the circulation of scrip and reserve banknotes in north/central China.
- 4.
See Kojima (1941) and Takaishi (1970a).
- 5.
According to Kojima (1943), properties such as land were offered as collateral by commercial and native banks that were participating in the Wei Wah system. In a new clearing system, however, such collateral requirements were abolished. Consequently, CRBC notes and checks were convertible with each other, but both were no longer backed by real assets in the system operated by the CRBC.
- 6.
Tatai (2002) describes in detail how bilateral depositing worked among the FRBC, BOChs, and the Japanese government.
- 7.
Huff and Majima (2013) describe in detail the financial arrangements between the YSB and the BOI and between the BOJ and the BOTh.
- 8.
Hattori and Oguro (2016) estimate the scale of monetary operations by the BOJ during and immediately after the war by various measures.
- 9.
Here, not \(\frac{{\Delta M_{t + 1} }}{{P_{t} }} = \frac{{M_{t} }}{{P_{t} }}\frac{{\Delta M_{t + 1} }}{{M_{t} }}\), but \(\frac{{\Delta M_{t + 1} }}{{P_{t} Y_{t} }} = \frac{{M_{t} }}{{P_{t} Y_{t} }}\frac{{\Delta M_{t + 1} }}{{M_{t} }}\) is adopted as relative seigniorage, where \(Y_{t}\) denotes real GDP.
- 10.
See Editorial Office of History of Public Finance in Showa Era (EOHPF), MOF (1955), and Takaishi (1970b, 1970c) for the descriptions of this subsection.
- 11.
The local sales of gold bars in China were converted into yen at the wartime fixed exchange rates.
- 12.
The fact that the monetary transfers to the occupation forces were not large in north/central China and the southern regions does not mean that Japan’s labor exploitations and physical confiscations were also small there. See Boldorf and Okazaki (2015) for a wide range of severe exploitations by the Japanese government and the occupation forces in China, the southern regions, and Manchuria.
- 13.
According to Takaishi (1970a), barter transactions in black markets were dominant in north/central China in the final years of the war.
- 14.
See Iwatake (1990) and Zhaojin (2003).
- 15.
See Iwatake (1990) and Zhaojin (2003).
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Saito, M. (2021). On Large-Scale Monetary Operations in the Japanese Occupied Territories During the Pacific War. In: Strong Money Demand in Financing War and Peace. Advances in Japanese Business and Economics, vol 28. Springer, Singapore. https://doi.org/10.1007/978-981-16-2446-9_3
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DOI: https://doi.org/10.1007/978-981-16-2446-9_3
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