Why Nepal Grows Japan’s Cash | Big Business | Business Insider

Key Concepts

• Argali (Mitsumata): A shrub native to Nepal, used for centuries in traditional paper making and now a key component in Japanese yen banknotes.
• Yen: The currency of Japan, with a long history of using paper money.
• Polymer Banknotes: Banknotes made from plastic, offering increased durability and security features compared to paper.
• Cashless Society: A society where financial transactions are conducted primarily through digital means rather than physical currency.
• National Identity and Currency: The role of banknotes in representing and solidifying a nation-state's identity.
• Wartime Trauma and Cash: The psychological impact of war and economic instability on people's preference for holding physical cash.

Argali Cultivation and Processing for Japanese Yen

For centuries, the Argali shrub, a plant that grows wild in the mountains of Nepal, was a low-value crop used locally for government documents and religious texts. This changed in the 1980s when Japan faced a shortage of Mitsumata, the traditional plant used to produce its currency, the yen. As domestic supply dwindled due to harvesters leaving the trade, a Japanese paper supplier, Combo Inc., discovered the abundance of Argali in Nepal and recognized its potential as a substitute.

Combo Inc. began collaborating with Nepalese farmers in 2015, sending specialists to improve yields and harvest quality. Key improvements included:

• Steaming the Bark: Instead of peeling the bark raw, farmers were taught to steam it, making the outer layer easier to remove.
• Stripping Machines: New machinery was introduced to efficiently remove the top layer of bark, leaving only the inner part suitable for paper production.
• Soaking and Sun Drying: Multiple rounds of soaking the plant facilitate manual peeling of the remaining outer bark. The bark is then laid out in the sun to dry. This process, which can take up to two days if cloudy, is crucial for preventing mold and reducing transport weight.

These efforts significantly improved the quality of Nepalese Argali. Initially, Japan rejected 20% of the harvest, but with improved techniques, Nepal's Argali production surged from 30 tons in 2012 to 150 tons annually. This has transformed Argali into a lucrative cash crop for farmers like Romesh Rye, who has been harvesting it for 25 years. He now earns up to $2,800 annually, double his previous income from corn and potatoes, and sells Argali for five times its former value.

The processed Argali bark travels through ports in Kathmandu and Kolkata, India, before reaching Japan.

Japanese Yen Production and Historical Context

Japan's National Printing Bureau transforms the raw Argali material into banknote paper. The yen are then printed in sheets, incorporating security features like holograms. Approximately three billion bills are produced annually for the Bank of Japan.

Japan's relationship with physical currency is deeply rooted:

• Ancient Origins: The country's first copper coins date back to 708 AD.
• Transition to Paper: By the 9th century, metal shortages and counterfeiting led Japan to trade in rice and silk. In the 12th century, Chinese coins were adopted. By the early 1600s, Japan began minting its own gold, silver, and copper coins to stabilize trade.
• Modern Currency: In the mid-1800s, to compete with Western powers, Japan developed a modern currency. The yen, made from the Mitsumata shrub, began to be printed in the 1870s. This period, as noted by currency historian Bill Mau, was when many countries started issuing paper currency as a way to assert their existence as nation-states, alongside flags and anthems.
• 20th Century Influences: Wars and bank failures in Japan led many citizens to hold their savings in cash, valuing its anonymity, privacy, and reliability, especially during times of crisis when infrastructure might fail.

Paper vs. Polymer Banknotes: A Global Trend and Japan's Choice

Globally, paper has been the traditional substrate for banknotes, typically made from cotton and linen. However, Australia pioneered the use of plastic-based bills in 1988 to combat counterfeiting and extend currency lifespan. This led to dozens of other countries adopting polymer banknotes.

Advantages of Polymer Banknotes:

• Durability: They last two and a half times longer than paper notes.
• Security: They are harder to counterfeit due to features like see-through windows, holographic foils, and color-shifting metallic films.

Disadvantages of Polymer Banknotes:

• User Experience: They can be susceptible to damage from extreme heat (e.g., melting in a car's glove compartment) or accidental washing.
• Tactile Detection: The unique feel of paper, which aids in counterfeit detection by touch, is less pronounced.

Despite the global shift towards polymer, Japan has remained loyal to paper for its banknotes, including the new issue introduced in 2024. This decision is attributed to:

• Artistic Heritage: Paper banknotes are seen as part of Japan's artistic heritage.
• Tactile Feel: The Argali-based paper provides a familiar and distinct tactile feel, crucial for counterfeit detection by touch, aligning with traditional methods.
• New Security Features: The 2024 yen notes incorporate advanced security features like 3D holograms and special tactile marks for the visually impaired, which are designed to work with the paper substrate.

Economic and Social Impact in Nepal

The demand for Argali has revitalized villages in Nepal. Previously, many residents left to find work in India or the Middle East, and those who stayed had to travel long distances to sell their goods. The emergence of Argali as a cash crop, coupled with government-funded road improvements, has spurred renewed growth. Romesh, for instance, now employs about 50 local people.

The Future of Cash and Argali in Japan

The long-term viability of Nepal's Argali business is linked to Japan's evolving relationship with cash. Japan's cashless transaction rate has more than tripled in the past decade, reaching approximately 43% in 2024, with a government target of 80%.

Combo Inc. is exploring diversification, encouraging Nepalese farmers to produce other goods for the Japanese market. Farmers like Tikaram Katiwara are already prioritizing crops like kiwi that can be harvested more frequently, preparing for potential dips in Argali demand.

However, a complete abandonment of cash in Japan is unlikely in the near future due to several factors:

• Aging Population: Nearly a third of Japan's population is over 65, and many in older generations are more comfortable with cash, having grown up in a cash-centric economy.
• Economic Stability: Japan's near-zero interest rates mean bank savings offer minimal returns, making cash a viable option for some.
• National Security: Maintaining a well-functioning cash cycle is considered important for national security, providing a reliable medium of exchange during emergencies like conflicts, natural disasters, or infrastructure failures. Therefore, even with increased digital adoption, the central bank is likely to encourage people to retain some cash.

Conclusion

The story of Argali in Nepal highlights a unique intersection of traditional craftsmanship, international demand, and evolving economic landscapes. While Japan's embrace of paper currency for its yen, driven by heritage and tactile security, provides a vital economic lifeline for Nepalese villages, the global trend towards cashless societies presents a long-term challenge. The adaptability of Nepalese farmers and the enduring practical and psychological value of physical currency suggest that cash, and by extension, the Argali-based yen, will likely persist for some time, albeit in a potentially diminished role.