I am not a monetary historian, so I don’t intend to engage in academic hair-splitting here. I’ll leave those debates to the professors. In stories and cartoons, money is often depicted as shells or stones. However, as defined by the Bank of Japan, money is—simply put—cash and deposits. Cash, in turn, consists of coins and banknotes. Let’s break these down.
(Note: In Japanese law, the term “currency” (kahei) specifically refers to coins, which can be confusing. To avoid ambiguity, I will stick to “money” and specific terms like coins and notes.)
1. Coins
Coins are, essentially, processed pieces of metal. According to the Japan Mint, famous early examples like the Wado Kaichin and Fumon-sen were cast in the 7th and 8th centuries, primarily from copper.
Generally speaking, the older the era, the more closely the value of the metal matched the face value of the money. Over time, however, the gap between the two has widened significantly. According to MUFG (2020), the production cost of a 500-yen coin is a mere 20 yen. The cost of the raw materials alone is even lower. In other words, the value of the metal is now almost entirely unrelated to the face value. Today, coins are issued by the government.
2. Banknotes
According to the National Printing Bureau, the first banknotes in Japan were Yamada Hagaki, circulated among Ise merchants in the early Edo period. In 1661, the Fukui Domain issued notes known as hansatsu. These were likely issued when there wasn’t enough central government coinage to go around. If issued to match economic growth, it’s a countermeasure against deflation; if issued desperately to cover a budget deficit, it leads to inflation, and the notes risk becoming worthless scraps of paper.
Compared to coins, banknotes feel even more “symbolic.” Unlike a coin with some metallic worth, a banknote is just a piece of paper—a printed object. As paper, its physical utility is limited to being recycled, blowing your nose, or taking notes. It is effectively worthless. MUFG (2020) states the cost of printing one bill is about 17 yen. For a 10,000-yen note, the difference is a staggering 9,983 yen. Today, banknotes are issued by the Bank of Japan.
3. Deposits
This refers to the money sitting in your bank or postal savings account. When you use a credit or debit card, the amount is deducted from your balance, making deposits a functional substitute for physical cash.
We used to record these transactions in physical passbooks. Today, “passbook” is almost a dead word; we now check our balances via online banking as a matter of course. The disappearance of paper passbooks has made it clearer than ever that deposits are, physically speaking, nothing more than digital information. Their physical value is zero.
The Bottom Line: Money is a Construct
Since coins and banknotes are physical, you can increase their supply simply by feeding raw materials into a minting machine or a printing press. But how do you increase deposits—which are just digital data? While I’ll skip the complex details for now, the reality is that (aside from individuals depositing cash) only the Bank of Japan and private banks can “create” deposits.
What is clear from this is that the physical value of money—even for metal coins—is negligible. If the government is serious about it, they can create as much money as they want. When I say this, austerity advocates often jump in with legalistic counterarguments. My response is simple: If the law stands in the way of necessity, then change the law. I repeat: the government can create as much money as it needs. Taking banknotes as an example, as long as you have the “printer” and the paper and ink, you can make as many as you want. Even a primary schooler can understand this. If you explained it while showing them how to change an ink cartridge, most kindergarteners would get it, too.
So why, when we go to a shop, do people exchange actual goods and services for mere scraps of metal, paper, or digital data? There are various theories, but proponents of MMT (Modern Monetary Theory) often explain that “money has value because the state accepts it as payment for taxes.” This is a compelling perspective.
References
Bank of Japan: “History of Japanese Currency” (Japanese: 日本貨幣史). Accessed January 11, 2024. https://www.imes.boj.or.jp/cm/history/
MUFG: “A thorough explanation of the cost of money! What is the production cost of Japanese banknotes and coins? What about currencies around the world?” (Japanese: お金の原価を徹底解説！日本の紙幣や硬貨の原価は？), March 2020. Accessed January 8, 2024. https://magazine.tr.mufg.jp/90130
National Printing Bureau: “The History of Banknotes” (Japanese: お札の歴史). Accessed January 8, 2024. https://www.npb.go.jp/ja/intro/ostu_history.html
Japan Mint: “The History of Japanese Currency” (Japanese: 日本の貨幣の歴史). Accessed January 8, 2024. https://www.mint.go.jp/kids/history
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