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Japan's adoption of gold monometalism, 1873-97 - Coggle Diagram

- - - - Argued that it served as a symbol of financial rectitude, help to reduce the cost of borrowing abroad.
    - - 1884: one British merchant "Japan could borrow more money favorably in London with gold standard bonds"
      - 1897: the Sentinel claimed the main goal of the Japanese government was “to negotiate a loan in Europe on better terms"
      - 1899: Finance Minister Matsukata Masayoshi, help invite capital from gold-standard countries at low interest.
    - - Over-determined events
        
        Saw a host of political, judicial, and institutional reforms, thus inaccurate to attribute improvements solely to the adoption of gold (Flandreau and Zumer)
      - No clear bond price effect
        
        No clear trend in bond prices suggesting investors expected lower borrowing costs (Mitchener and coauthors)
      - Matsukata remained staunchly opposed to foreign borrowing until 1896
  - - - 1897, Finance Ministry officials emphasized the benefits of eliminating exchange-rate risk.
      - 1895, Matsukata’s aide, Sakatani Yoshiro, argued that switching to gold was the “natural trend” of the world.
    - - Existence of hedging institutions
        
        Explanation ignores that financial institutions like the Yokohama Specie Bank already existed to manage exchange-rate risk
      - Neglect of policy endogeneity
        
        Methodological error by treating Japan's shift in trading partners as exogenous.
        
        The shift was a direct result of a deliberate policy choice, which is Japan’s postwar military and heavy-industry expansion program
- - - - His victory shaped Japan’s financial policy for years, emphasizing autonomy and avoidance of foreign debt until after the Sino-Japanese War.
  - - - Matsukata demanded payment in British pounds and deposited the entire sum in an account at the Bank of England, instead of bringing the indemnity home.
    - - The money directly financed the postwar spending program, especially the purchase of modern armaments
      - The data show a dramatic surge in military spending immediately after the war
  - - - If Japan borrowed in yen, foreign investors would fear depreciation risk.
      - By turning to gold, Japan shifted that risk away from investors, making access to foreign capital easier.