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The Formation of the Modern East Asian Economy
     This response is first evident in the higher copper level in both private and local Japanese government coins than in Ming coins. But, over the long run, far more decisive was the discovery and exploitation of great supplies of silver in western Japan in the early sixteenth century. Henceforth, Japanese local lords and eventually the central government could stabilize their currency and free themselves from the vagaries of Chinese coinage. In addition, silver refinement methods were improved by two domestic innovations in 1501 and 1521 and even more by the introduction in 1533 of a Western method of extracting pure silver through ash filtration.

      By the early seventeenth century, Japan's annual silver production level of about 150,000 kilograms accounted for roughly 40% of the world's silver output. This metal not only vastly increased imports of Chinese commodities, but also let the Japanese government improve its currency resources. For its silver was used to buy gold. During the latter half of the sixteenth century, the ratio of 1 oz of gold to 8 oz of silver in China, the Philippines, and the rest of mainland East Asia compared with a 1 to 5 rate in Japan. In the 1620s, the rate elsewhere in East Asia was 1 to 13, and so throughout the world vessels headed for Japan to wet its appetite for gold and return with their holds filled with Japanese silver, at the estimated annual rate of 280,000 kgs, principally to China. The newly established Tokugawa government desired high quality metals, like foreign gold, to strengthen its currency system, and used silver to account for 80% of its exports.

     The year 1601 marks then a third, and final, stage in the pre-modern history of Japanese currency. For it was during this year that the newly established Tokugawa shogunate set up the first currency system in Japanese history which was independent of Chinese sources. One may note many parallels, and imitations, of the Chinese model, as in the official insistence that the state's legitimacy and proper operation were represented by its having its own successful currency. Known as the "Three Currencies System," this Tokugawa coinage system was essentially a tri-metallic system of gold-cash, silver-cash, and copper-cash, operating at a fixed official exchange rate of one gold tael being equal to 187.5 grams of silver or 4,000 strings of copper cash. Paper money circulated within local domains, backed by local governments and merchants. A final touch to this system was applied in 1772, by the official coinage of 98% silver numeraire as subsidiary to gold coins.

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