Meanwhile almost unlooked for and wholly insurmountable difficulties had been encountered in the effort to establish in Japan a gold standard, as defined in the coinage law of May 1871, based on Ito Hirobumi’s recommendations, the intrinsic merit of which was not disputed though it had most reluctantly to be confessed that the time was not propitious for their entire adoption. Situated as Japan was in the midst of the silver countries of the East, it was found impossible to uphold the gold standard, and the Government had been driven, moreover, to the expedient of issuing paper money to meet its financial needs at a time when it was hampered by having, in addition to other embarrassments, to take over all the notes issued by the former _daimios_ who had been dispossessed—voluntarily, it must be added—of their fiefs on the restoration of a central imperial government. Paper money was at a heavy discount for a long time, partly because the people could not overcome their repugnance to notes due to the sad experience they had had in years gone by of the inconvertible “satsu” of feudal times. The crisis had been partly met by the issue of 6 per cent. Government bonds (_kin-satsu_, _lit._: gold note) given in exchange for the paper money in order to decrease its amount, and by degrees the hatred of paper money wore off. The Satsuma rebellion in 1877, however, once more placed the Government under the necessity of issuing a large amount of inconvertible notes, which brought about a new depreciation, prices rose rapidly, gold and silver left the country, as imports vastly exceeded the exports, and in 1880-1 there was great financial distress. As Count Matsukata in his work on the “Adoption of the Gold Standard in Japan” has said,—“that disastrous results would inevitably follow if convertible paper money were made the standard of value” might easily have been foreseen, but it appeared that an idea prevailed that the difference between the price of silver and paper was an indication, not of the depreciation of paper, but of the appreciation of silver. The attempt was made to stop the rise of the price of silver by increasing the amount of its circulation. The Government sold silver coins, opened places for the exchange of Mexican dollars, and established the Yokohama Specie Bank in order to call forth the coins hoarded by the people. But the more these measures were resorted to the more rose the price of silver.