The debate over government notes


Scholars and Liberal Democratic Party members have been urging the government to print its own money to counter the once-in-a-century crisis buffeting Japan.

While advocates claim the measure should at least be considered as an option, senior government and central bank officials are adamantly against it.

Following are questions and answers on government notes:

What is a government note? Is it different from the money currently in circulation?

It is a currency note issued by the government. At present, the government issues coins of ¥1, ¥5, ¥10, ¥50, ¥100 and ¥500, while the Bank of Japan prints paper money in denominations of ¥1,000, ¥2,000, ¥5,000 and ¥10,000.

The government has no say in how much paper currency the BOJ issues, and the central bank does not want to print too much cash because that causes inflation.

This is why LDP lawmakers and a few academics are pushing for government notes, or cash the government can issue at its own discretion.

Has the government ever issued bills?

Yes. During the Meiji Era (1868-1912), it issued “dajokansatsu” bills to pay for the Boshin War from 1868 to 1869.

To address funding shortages for the military, the government also printed “gumpyo” military script during the Russo-Japanese War and both world wars.

What are the advantages?

Japan’s fiscal condition is the worst among major advanced countries, the Finance Ministry says. As this fiscal year draws to a close next month, the central and local governments have an estimated debt balance of ¥553 trillion.

If government debt rises, consumers think there will be a tax hike in the near future, dampening their consumption and pushing the economy downward.

Government notes are not counted as state debt. Printing them therefore enables the government to stimulate the economy while not increasing debt, some economists argue.

One of them is Yoichi Takahashi, a professor at Toyo University.

“To get rid of deflation, there needs to be a policy to increase money,” Takahashi said.

The government should utilize its power to issue the money if it is difficult for the central bank to increase the money flow, he said.

Given the economic downturn and dim prospects for the future, Takahashi argues the measure is justifiable.

“It is because we may have a big panic, which occurs once in (a century),” he said.

In politics, the idea caught wide attention, especially after Yoshihide Suga, a former internal affairs and communications minister, voiced his interest in the idea on a TV program last weekend.

What is the downside?

Many experts argue that issuing an unlimited amount of government notes would drive the yen down and spark steep inflation.

They are also concerned that fiscal discipline would as a result fall by the wayside.

Is it even feasible?

Not really. Senior officials in the government, the LDP and the BOJ do not support the proposal.

“The negative effects would be big and it could cause long-term interest rates to rise,” BOJ Gov. Masaaki Shirakawa told reporters Tuesday.

LDP Secretary General Hiroyuki Hosoda is also critical.

“If that can be done, why don’t we print ¥30 trillion in bills each year and repay all of the ¥800 trillion debt, repay all of it in 30 years?” he asked at a news conference Monday.

“That is only an academic discussion and meaningless, as you already know well,” Hosoda said.

Vice Finance Minister Kazuyuki Sugimoto said Monday that the government would have to clear a raft of technical hurdles before it could print notes.