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Government bonds, and the profit from the same is carried to the gross income of the bank. The latest accounts show that this fund stands at 15,700,000 yen. The successive directors of the bank have always endeavoured to increase the fund so as to strengthen its credit.

At the time when the Bank of Japan was organized, the market was flooded with inconvertible paper currency. The Government paper money amounted to 115,381,292 yen. The notes of national banks were over 34,396,818 yen, which did not all enjoy the same credit. The currency was inflated to such a degree that the premium on specie was once 79 per cent. Under such circumstances it was the policy of the Government to place the power of regulating the currency entirely in the hands of the Bank of Japan, and to replace this inflated currency with the notes of the bank, which were to be elastic and redeemable in silver. For this purpose the Government issued gold note redemption bonds to contract the circulation of depreciated paper, and purchased silver and foreign bills to prepare the way for the resumption of specie payments. Within three years the Government paper money was withdrawn to such an extent that the Bank of Japan felt it safe to issue its first notes in May, 1885, and all paper currency became convertible into specie from January 1, 1886.

The law which regulates the notes of the Bank of Japan is based upon the German system, yet there are some interesting differences. The bank-notes are issued under three different conditions:

1. The notes issued on metallic reserve. This reserve used to be silver, but since the adoption of the gold standard, on October 1, 1897, it has consisted and consists of gold, save that one-fifth of the total metallic reserve may be kept in silver. But, as in the case of the Bank of England, this exception is seldom fully availed of.

2. Notes issued on business assets within the legal limit. The limit, which was at first 70,000,000 yen, was extended to 85,000,000 yen in May, 1889, and to 120,000,000 yen in March, 1899. In consideration of this privilege the bank was prescribed by law to advance to the Government a sum of 22,000,000 yen without interest, which has been employed as the fund for withdrawing the Government paper money. Moreover, the outstanding circulation of Government and national bank notes was included in the amount of the legal limit of the bank’s note issue, and it was to be gradually replaced by the notes of the bank. It was not until the end of 1899 that the Government and national bank notes were entirely withdrawn from circulation.

3. The emergency notes, or those issued upon business assets