Chapter 726 — Solid Gold and Silver

"After roughly half a year of trial, the pilot regions have successfully replaced over seventy percent of precious-metal circulation with the temporary currency, maintaining normal commerce and normal settlement of local finances," Patrick said, wiping his brow—which had grown broader over the past two years—as he reported meticulously. "People went from not understanding or trusting paper money at first, to discovering that it could indeed be used to buy goods, and now they have gradually grown accustomed to its existence. From the standpoint of simply introducing paper money and forming a habit, the pilot has been a success.

"But the pilot's flaws are also obvious. As you can see, we have fundamentally not escaped the essence of gold-and-silver settlement; the currency circulating in the pilot regions is in essence still circulating gold and silver. And precisely because of this, the simultaneous existence of 'gold notes' and 'silver notes' means that exchange between paper denominations is still subject to precious-metal prices, and the phenomenon of bad money driving out good will occur. Recently, however, we have succeeded in severing the silver note from silver itself, so that it can only be exchanged for gold notes and not directly for silver—in effect making it a 'subordinate unit' of the gold note. That has more or less resolved the problems brought by bimetallism..."

Gao Qi frowned at the several currencies on the table, flipping through the detailed report Patrick had brought, and could not help muttering under his breath: "What a mess..."

Patrick immediately wiped at his cold sweat: "...Your Majesty, my deepest apologies..."

"No, I'm not rebuking you," Gao Yang said quickly, waving a hand. "You've done well—you carried out all the tests and sampling as I required. This chaos is simply what inevitably happens when a new thing is introduced... it's a law of nature, not your fault."

Only then did Patrick relax: "Yes, Your Majesty."

"The Empire's gold and silver reserves show no marked imbalance; issuing currency on either a silver standard or a gold standard would be feasible. But whether we should continue issuing currency on a precious-metal basis at all—that is the real question," Gao Xi said slowly, deep in thought. "Patrick, you must surely have realized the hidden dangers of pegging paper money directly to gold or silver."

"...Yes, Your Majesty. And after hearing your theory of the currency trap, I confirmed that the danger is real and extremely grave," Patrick said at once with a nod. "From a long-term perspective, and from a practical one, I believe the 'credit currency' you once mentioned is the better choice."

"...Credit currency, is it..." Gao Song's brow furrowed again. "Patrick, you should know that issuing credit currency demands a far higher foundation than issuing scrip. Because in essence, we would be defining paper with no utility value whatsoever as 'money,' and the greatest precondition for people to use this 'paper' to buy goods and settle accounts is that they believe the Empire can honor the value represented by every 'banknote.' That 'trust' must be as reliable as solid gold and silver."

Patrick met Gao Song's gaze, his slightly portly frame seated very steadily, and nodded, his answer brief and forceful: "Yes. I understand."

Long before coming here, he had thought about it a great deal.

If Cecil was to advance to a higher stage of society, the currency reform had to be completed as quickly as possible. And even setting aside the distant future, from the present alone, the muddled currency system left over from the old Ansu era had already reached its limit.

The private minting by nobles throughout the age of enfeoffment, together with the frequent recoinages caused by the kingdom's political turmoil, had left the old currency system in utter chaos. In the Holy Spirit Plain and parts of the Western Region alone, the officially circulating currency included silver shields, long silver coins, short silver coins, gold shields, royal diagonal-striped gold coins, round copper coins, small round copper coins, and dozens of other metal currencies—of wildly uneven quality and with a bewildering tangle of exchange rates.

The intricate currencies and exchange ratios not only left merchants tearing their hair out but also made it hard for ordinary people to conduct transactions of any larger scale. They even gave rise to a specialized profession of "exchangers," and these exchangers, backed by local nobles, became a kind of disguised "extra tax official," squeezing from the common folk and petty traders the little money they already had.

The chaos of the currency also obstructed commerce across the land: because exchange was inconvenient and settlement risk enormous, trade between regions was often monopolized by particular groups, and in the areas where the currency was in the greatest disarray and bad coin most severely saturated, commercial activity had reached the point of being nearly impossible to carry out...

Even with trains, even with new economic policies, so long as this quagmire of a "currency garbage heap" remained, Cecil's reconstruction and development would inevitably struggle at every step.

Thus, when Gao You reclaimed the nobles' powers, one of the most important measures was to abolish all nobles' rights of minting and concentrate them in the Imperial Mint (formerly the Cecil Mint); private coinage circulating in the regions was declared illegal, and over a certain cycle the Civil Administration Office would step in to gradually recall, remint, and exchange it.

Since the old coins were all precious-metal currency, so long as their fineness met the standard, their value would not diminish through recall and reminting (losses aside), and so this step of currency unification was carried out fairly smoothly.

And under the great premise of currency unification, the promotion of paper money was likewise a task that had to be done.

In the age of arcanomechanical industry, the growth rate and abundance of goods far exceeded anything anyone in the old era could have imagined. Precious-metal currency—with its limited unit value, inconvenient transport, and complicated settlement—would soon fall behind the times. The neighboring Typhon Empire had already begun issuing new coinage, and Cecil too must immediately enter the next stage of currency reform.

This was a sweeping reform, and Padrick believed that since such sweeping action was already to be taken, it was necessary to carry the transformation through in one go.

Nothing in this world is perfect, and fiat currency has its inherent flaws, but at least in the long run it can avert the greatest peril of representative money. As for the prerequisites for issuing fiat currency, he had also considered them: a highly centralized and singularly authoritative core regime, the people's trust in the national system, the Supreme Administrative Council's formidable capacity for enforcement, and effective means and early-warning measures to curb the unlimited over-issuance of currency. Yet however great these difficulties, Cecil must issue fiat currency.

He had his own considerations, and he was confident that His Majesty the Emperor before him would support him once he heard them.

Gao Yang, for his part, kept his brows tightly knit.

He of course knew the merits and defects of fiat currency, and knew the fatal weakness of representative money, yet he also knew that a stride too great would tear one's groin.

The fear that issuing fiat currency outright would give rise to all manner of chaos was the greatest reason he had been unable to make up his mind.

He looked at Padrick before him.

This Kant scholar of extraordinary talent in the economic field was not a man given to careless talk.

"Let me hear your reasoning, Padrick."