Money Lending in Japan Before

Money Lending in Japan Before 1800 Japan is now one of the most developed countries in the world. Up until recently, when it was overthrown by China, Japan was the largest automobile producer in the world. They are the fourth largest economy of the globe, with a gross domestic product of $4.141 trillion, a high income per capita of $32,600 (three times the global average) and a low unemployment rate of 5.6% (Central Intelligence Agency, 2009). The country's banking system is complex and well developed, having integrated several it features.

Yet, today, like many other global regions, Japan is struggling to cope with the internationalized economic crisis. The country is under great pressures due to their decreasing savings, which no longer allows them to pay their federal debts. The Bank of Japan strives to ensure financial stability. It was founded in the nineteenth century and has since focused on the development and implementation of efficient, effective and protective financial policies. The situation of the lending money practices was however more different before the central bank was founded. 2.

Money Lending in Japan before 1800 The practice of lending money is as old as the existence of money itself. Yet, not much is known about the incipient stages of the practice, in Japan as well as in other global regions, and this is mostly explainable by the lack of attested documents. In the early stage of Japanese development however, it is assumed that the role of money borrowing and lending was reduced.

This is explainable first by the territorial isolation of Japan, due to which the country did not trade merchandise and commodities with other nations. Secondly, at a national level, the Japanese people would exchange their own commodities for other commodities, without the extensive usage of money. At this stage, and then during the age of feudalism, agricultural activities were the main occupations of the people and as such the sole source of life sustaining commodities.

As the practice of money lending would become more popular, the adherent deals would be made by tradesmen, artisans or mechanics, the individuals located on the inferior steps of the social ladder. The Samurais, who were the vassals, perceived money as "the ugliest thing" and believed that even handling it would "pollute" their hands. Most of the money lending activities then would be handled with the utmost discretion and even in secrecy at times (Soyeda, 1994).

At a time in which the Japanese society was placing the greatest emphasis on the development of their overall society, the actual act of lending money to help someone would be considered superior to the necessity of reimbursing the loan. In such a context, the merciful laws, known as the Tokusi, would state that after a specific time period in which the debtor has proven unable to pay back the loan, his debt would be erased and the creditor had no right to pursue the reimbursement of his money (Soyeda).

This emphasis on the public good was a major cause of the late developments in money lending. As the practices became more common, the money lenders began to demand an interest on their money. While it would suffer various modifications throughout the years, the interest rate remained relatively constant. And most importantly, it would always be fixed. Wari, the initial name used to refer to the interest rate, would eventually come to represent the change in the interest rate (Takekoshi, 2004).

By 1433 however, new laws had been instated to regulate the practices of money lending.

They would basically argue: "(1) Articles of daily use may be pawned, but the term for wearing apparel is limited to a year and that of weapons to two years (2) the rate of interest must be within fifty per cent (3) Those who do the business without sufficient funds shall be punished, and if they abscond, the liability must be borne by the people of the district" (Soyeda) An interesting aspect of the early stages money lending in Japan is that the creditors would often require a guarantee.

And this guarantee would be a certain good held by the debtor until the creditor paid back his debt. In other words, the mechanism was that of the modern day pawn shops. Future laws would be introduced to regulate the treatment of pawned items. In this order of ideas, in 1790, the Hundred Clauses clearly stated that pawned items could only be sold by the creditor after eight months and that the creditors who broke this rule stood to face severe repercussions.

In the aftermath of these laws, which, amongst other things, recognized the existence and importance of pawns, the lending money institutions would increase in role, presence and weight. The elements of secrecy would be significantly reduced and the behind-street and in-the-dark operations would be replaced with money lending operations, which occurred in broad daylight and in the specially created locations of the lenders. By this time, the money lending houses and the pawn brokers had become more popular. Difficulties were however raised by the existence of several currencies.

Each district would issue its own coins as the country had not promoted a single official currency. The people used a myriad of gold and silver coins, some of the most common ones being the Joji-han, the Koshu-kin, the Juyei-han or the Yeiji-han (all gold coins). Yet, the coins would generically be approved of by the shogun. The Shogunate would also approve of the people in charge of lending.