Introduction

Japan's public finances have entered a stage where conventional fiscal policy alone can no longer provide a convincing solution.

By the end of 2025, the combined debt of Japan's national and local governments had reached approximately 1,442 trillion yen, while annual national tax revenue was only about 78 trillion yen. In other words, outstanding public debt has grown to roughly 18 times the annual national tax revenue.

This raises an unavoidable question.

How will these debts ultimately be repaid?

Governments can continue issuing new government bonds to refinance existing ones, and as long as financial markets maintain confidence, this process may continue for many years. Nevertheless, the fundamental issue remains unresolved. At some point, every nation must confront the relationship between public debt, taxation, money creation, and economic stability.

The traditional answer is simple: increase taxes.

In principle, this is correct. Government spending circulates throughout the economy. People and businesses spend the money as necessary, and the portion that remains eventually accumulates as bank deposits and other financial holdings. If a government wishes to reduce accumulated debt, the logical method is to recover part of those accumulated funds through taxation.

However, while economically logical, this solution is politically extremely difficult. The larger the debt becomes, the greater the tax burden required, and the more difficult it becomes for democratic governments to implement.

For this reason, I propose a third alternative.

Rather than relying exclusively on either additional government borrowing or substantial tax increases, governments should consider introducing time-limited government currency.

A Third Alternative: Time-Limited Government Currency

The proposal is straightforward.

Instead of financing fiscal deficits through newly issued government bonds, the government would issue its own currency with a fixed period of legal circulation—for example, ten years.

Unlike conventional currency, this government currency would not remain valid indefinitely. Once its circulation period expired, it would no longer function as ordinary money in private transactions.

However, even after expiration, it would continue to be accepted at full face value for payments to the government, including taxes and certain public charges.

The essential point is that this currency would not become permanent money. It would function as a temporary fiscal instrument whose circulation period is known in advance.

Equally important, every issuance of government currency would be accompanied by a legally established recovery plan through future taxation or equivalent public payments.

In other words, currency issuance and currency recovery would be designed as one integrated fiscal policy.

This differs fundamentally from unlimited money creation.

A Dual-Currency System

My proposal is not simply to create another form of money.

It is to establish two currencies with different economic functions.

The existing yen, issued by the Bank of Japan, would continue to serve as Japan's permanent currency. It would remain the principal store of value, the basis for long-term contracts, savings, loans, and international confidence.

Alongside the yen, the government would issue a second currency.

For convenience, I call this second currency "Ai" (?).

The name itself is not essential. Other names could certainly be adopted.

I choose "Ai" because it clearly distinguishes government currency from the yen while expressing the hope that this currency should ultimately serve society and the public good.

Thus, Japan would operate with two currencies:

• Yen — permanent money designed primarily to preserve value.
• Ai — time-limited government currency designed primarily to maintain economic circulation and support fiscal policy.

Both currencies would have equal face value.

For example,

100 million yen = 100 million Ai

in nominal purchasing power.

However, they would perform different economic functions and therefore would be managed separately.

Citizens and businesses would naturally use both currencies according to their respective purposes.

This distinction is, in my view, the central innovation of the proposal.

Rather than asking one currency to satisfy every economic objective simultaneously, the monetary system itself would assign different responsibilities to different forms of money.

The Operation of "Ai"

The success of this proposal depends upon one essential principle.

Government currency must never become an unlimited source of permanent money.

For this reason, every issuance of Ai must satisfy three conditions simultaneously.

First, every unit of Ai must have a predetermined expiration date—for example, ten years after issuance.

Second, every issuance must be accompanied by a legally established recovery plan through future taxation or equivalent public payments.

Third, the government must specify in advance the public purposes for which the currency is issued.

Only when these three conditions are satisfied can government currency contribute to fiscal reconstruction without becoming a source of chronic inflation.

Unlike government bonds, Ai would carry no interest payments.

Unlike perpetual money creation, Ai would gradually disappear from private circulation through expiration and tax payments.

Its objective is therefore not unlimited monetary expansion, but controlled fiscal financing.

Advantages of the Proposal

This system offers several potential advantages.

First, it would gradually reduce dependence upon government bond issuance.

Instead of financing every fiscal deficit through borrowing, part of government expenditure could be financed through temporary government currency.

Second, Ai would encourage monetary circulation.

Because Ai cannot be stored indefinitely, holders would naturally spend it before expiration. This would increase the velocity of money without permanently increasing the stock of money.

Third, the system would greatly strengthen emergency response.

During earthquakes, pandemics, financial crises, or other national emergencies, the government could distribute electronic Ai immediately, without waiting for bond markets or lengthy borrowing procedures.

Fourth, the proposal could help preserve essential public services.

Pensions, medical care, unemployment benefits, disaster relief, and other vital programs could continue operating even during periods of severe fiscal stress.

Fifth, the burden would not necessarily fall upon lower-income households.

Individuals with limited financial resources generally spend their income quickly for everyday living expenses.

Those most likely to retain Ai until its expiration would instead be households and corporations possessing substantial surplus funds.

Possible Risks

No monetary system is without risks.

The greatest danger would be excessive issuance motivated by political convenience.

For this reason, the issuance of Ai should be subject to strict legal conditions, including limits on purpose, transparency, parliamentary oversight, and coordination with the central bank.

Likewise, Ai should not simply become another form of ordinary money.

Its legal status, accounting treatment, circulation period, and relationship with the yen must all be clearly defined before implementation.

The proposal therefore requires careful institutional design rather than simple legislation.

Conclusion

Japan's fiscal problem will not disappear by itself.

Continuing to rely exclusively upon government bonds merely postpones today's burden into the future.

Relying exclusively upon taxation, on the other hand, faces enormous political resistance and may require decades before producing meaningful results.

I therefore propose a third alternative.

Rather than choosing between debt and taxation alone, governments should consider introducing a second form of public currency designed specifically for fiscal policy.

The objective is not to replace the yen.

The objective is to establish a monetary system in which two different currencies perform two different economic functions.

The yen would remain the nation's permanent store of value.

Ai would become a temporary fiscal currency designed to maintain economic circulation, strengthen public finance, and provide governments with greater flexibility during extraordinary circumstances.

Whether such a system ultimately proves practical should be determined through serious public debate, economic analysis, and institutional experimentation.

Nevertheless, the scale of today's fiscal challenges suggests that merely repeating existing policies may no longer be sufficient.

It is precisely at moments like these that fundamentally new ideas deserve careful consideration.

Appendix

Institutional Design Considerations

The main text presents the basic principles of the proposal.

The following appendix summarizes institutional and administrative issues that would require further examination before implementation.

These include, among other matters:

• Separate management of Yen and Ai.
• Electronic rather than paper issuance of Ai.
• Expiration schedules and accounting treatment.
• Tax payments using expired Ai.
• Banking and settlement procedures.
• Treatment of contracts, loans, and long-term obligations.
• Restrictions on speculative investment using Ai.
• Emergency issuance procedures.
• Administrative supervision and transparency.
• Periodic review and revision of the system based on practical experience.

These operational details are not presented as a final institutional design.

Rather, they are intended as a starting point for discussion among economists, central bankers, financial institutions, legal scholars, public administrators, and information-system specialists.

Fumihiko Takeda is the founder and Representative of the Lincoln Club, an independent political and policy research organization that he established in Japan on November 19, 1993. The Lincoln Club is his own organization and is not affiliated with, or a branch of, any organization in the United States.

He graduated from the Faculty of Law (Department of Political Science) at Keio University in 1967. In 1974, he founded the Cooperative Center, an information service company that conducted research and analysis for Japanese government agencies and major newspapers. In 1977, he established the Institute for Ultimate Democracy and has since devoted his career to the study of democracy, constitutional reform, electoral systems, and institutional design.

From 2006 to 2014, he served as a lecturer at the Graduate School of Law, Keio University. He is the author of numerous books and articles on democratic governance and political reform, including works on direct democracy, constitutional issues, and election systems. His policy proposals have been discussed in major Japanese publications and public policy forums.