The Okinawan dollar-yen juggling act

Tenth in an occasional series By MAYUMI NEGISHI Staff writer NAHA, Okinawa Pref. — On Aug. 15, 1971, U.S. President Richard Nixon took the dollar off the gold standard and introduced floating exchange rates, sending the greenback plummeting.

By the end of August, the U.S. currency fell more than 15 percent, to 305 yen from its 360 yen peg.

In Okinawa, residents panicked at news of the “Nixon shock.” Less than a year later, the islands were to be returned to Japan following 27 years of de facto U.S. military rule.

At the time of the reversion, dollars in Okinawa had to be exchanged into yen, putting at risk $562 million in cash and assets residents held.

Despite being under U.S. rule, more than 80 percent of Okinawa’s household goods were imported from the main Japanese archipelago, and the dollar’s plunge threw cold water on Okinawa’s celebration of its looming reversion, forcing it to face the risk of galloping inflation.

“Those Americans, they did it again. How much more do the Okinawan people have to suffer?” asked Matsusho Miyazato, then lieutenant chief of the Ryukyu Government.

Thus began a little-known episode in monetary history, in which Okinawa succeeded in securing financial aid amounting to 260.4 billion yen from the Japanese government for losses incurred when residents exchanged their dollars for yen on May 15, 1972.

Effectively, Japanese and Okinawan policymakers temporarily created a market protected from global monetary markets for the first — and probably only — time in international monetary history, pegging the dollar at 360 yen.

Recalling the unprecedented incident during a recent interview, Miyazato said he found an eager ally in Sadanori Yamanaka, then director general of the Prime Minister’s Office, the predecessor to the current Cabinet Office.

Yamanaka was a Lower House member from Kagoshima Prefecture, where the Satsuma clan had its power base during the Edo Period. The awareness of how Satsuma had invaded and exploited the Ryukyu Kingdom in the feudal period haunted Yamanaka, Miyazato said.

“I have to atone for what Satsuma did to Okinawa. That thought is what drove me throughout the negotiations,” Miyazato quoted Yamanaka as saying.

The guilt may have been potent, but it took sleepless nights and planning to come up with a scheme that would be effective in maintaining a fixed dollar rate in Okinawa.

Behind closed doors, Miyazato, Yamanaka and Michihiro Tanabe, an official at the Prime Minister’s Office who was originally from the Finance Ministry, decided to first find a way to count dollars held by Okinawans and to somehow mark the bills.

Second, they decided to close the doors of all Okinawan financial institutions and copy records of deposit and loan accounts to confirm individual assets.

To prevent dollars from flooding into Okinawa from around the world, passengers on all incoming planes and ships carrying $500 or more were requested to temporarily leave their money with police while the money was counted.

Deciding what needed to be done was easy, but the question of how to mark the dollars was not fully resolved until almost the last minute.

“There was no room for failure; there would be no second chance,” Miyazato said. “We had to mark the money somehow — we thought about gluing all kinds of paper onto the dollars at first. Then we thought about sticking mint, celebratory stamps of Okinawa’s reversion issued by the Ryukyu Government, on the dollars. We even thought about stamping the currency.”

But what would the U.S. say about foreign-looking characters on their dollars? What if Americans refused to accept the notes? Would Okinawa be charged for destruction of currency and be made to pay damages?

With time running out, and despite having printed 50 million stamps for that purpose, Miyazato agreed to Yamanaka’s suggestion that they use the eraser end of a pencil, dip it in red ink, and mark the counted dollars with little red dots. In this way, they could escape possible U.S. wrath by claiming the dollars were simply stained.

The stamps were eventually used on the certificates of confirmation given to Okinawans when their dollars were counted.

On Oct. 8, 1971, Ryukyu Government employees were each handed an envelope containing confirmation certificates, stamps for the certificates and red ink to mark $61.8 million worth of notes citizens had in their pockets, and another $500.1 million in assets at the bank.

In areas other than the main Okinawa island, employees waited to open their envelopes at 8 a.m., where they found instructions.

At the same time the soon-to-be-prefecture closed its banks’ doors, the Japanese government plan to subsidize losses on dollars held by individuals in Okinawa was announced to the media.

The government provided financial support amounting to 968 billion yen for Okinawan importers of 330 daily household goods, on the promise that none of the losses incurred from a fallen dollar would be reflected on prices of their products.

The Bank of Japan, guardian of the currency, did not move a finger to stop the government.

Protests from the U.S. Civil Administration of the Ryukyu Islands that marking the currency “sullied the face of the United States of America” were silenced by a couple of phone calls.

“We threatened to tell the media of the failure of the U.S. to follow through on its responsibilities to its territory, and take adequate measures to insure Okinawa’s smooth reversion,” Miyazato said. “I don’t know if it worked, but the complaints died.”

Miyazato, who lost more than 5 kg during the ordeal, looked back on the months leading to reversion.

“It may have been bending the rules of monetary policy a little,” he said. “But it was to protect the lives of Okinawans.

“In those days, it was considered a politician’s job to employ problem-solving skills to protect the interests of the people,” Miyazato said, criticizing politicians today as relying too much on precedents and foreign models.

“Japanese politicians today are too eager to please America and avoid doing anything that America might not like.”