Founding a Central bank

Abstract

This chapter shows how, like other aspects of the Matsukata financial reform that veered from classical financial orthodoxy, the Bank of Japan (BoJ) turned out to be hardly orthodox in its structure or operations. The BoJ, established in October 1882, was pivotal to Matsukata's effort to stabilize and modernize public finance. It separated currency management from the state's fiscal machine but keeping it under tight government supervision. Instead of choosing the Bank of England model with its high degree of independence from the government, Matsukata drew on the model of the Belgian central bank because it involved greater state control. Once established, the BoJ moved in an even more statist direction, assuming the task of financing industrial firms and adopting flexible German-style note issue under close government supervision rather than the orthodox Bank of England approach.