Chapter Fifty-Seven: Currency

  "Your Majesty, in my time there was a saying: whoever controls finance, controls the world."

  "What's going on?" The Chongzhen Emperor listened in a daze.

  Zhong Jinhua explained: "This is the greatest benefit of paper money. Whoever controls the right to issue paper money can grasp the throat of a country's settlement."

  Chongzhen Emperor and Wen Tiren both have a question mark on their heads, how is it possible?

  Zhong Jinwei continued to explain with his half-baked knowledge: "Of course, it's not just a matter of the imperial court printing paper money. There are a series of things that work together to have this effect."

  What Zhong Jinwei is talking about is the power of modern finance. Why the country does not dare to open up the financial industry is because it is afraid of being controlled by foreign capital. This has nothing to do with paper money, which is just one way of expression.

  "Master Zhong, please speak more clearly, I didn't quite understand." Chongzhen Emperor asked Zhong Xian honestly.

  "Let's take it one step at a time," said Zhong Jinwei, imitating an expert.

  "The prepared silver reserve system was established. The common people used the paper money and found it very convenient, and it maintained its value, so everyone was happy to use it. But at first, the imperial court had only printed 1,000 taels of silver-backed paper money, which wasn't enough for the common people, what to do?"

  Wen Tianren sank into silence, not saying a word, only staring at Zhong Jingwei. But Emperor Chongzhen was young after all, and he was moved by Zhong's words: "What to do?"

  "Let them bring their silver taels from home and exchange them for paper currency here at the imperial court. That way, they will have paper currency to use."

  "What's the benefit?" Wen Ti-ren stared at this.

  "The advantage is that the preparation of gold and silver no longer needs to be prepared by the court, and the court can print paper money."

  "The paper money that can be printed is not the court's paper money, but only a substitute for the people's silver and copper coins." Wen Tiren pierced the blood and pointed out the initial function of paper money, which was actually just a substitute for physical currency.

  "Take your time." Zhong Jinwei replied with a smile.

  "If things go on like this, won't the imperial court's reserve funds be more than sufficient? In theory, no matter how many paper notes are in circulation, they are pegged to the imperial reserves at a 1:1 ratio, and can meet any scale of exchange."

  This is imaginable, both Emperor Chongzhen and Wen Tiren had no doubt.

  "At this time, the court can print more paper money, for example, if there is 1 million taels of prepared gold, ordinary people may only come to exchange 800,000 taels at most, which means that there are still 200,000 taels of prepared gold left. The court can then issue 12 million taels of paper money. This extra 2 million taels of paper money can be used."

  The court can thus gain twenty million taels out of thin air without worrying about devaluation, which would be great. Emperor Chongzhen thought to himself with relish, now that we are short on money, if only we could print out twenty million, or even one hundred million, right away.

  "But this 200,000 taels can't be used casually."

  "Why?" Wen Ti Ren listened carefully now, and actually didn't feel like he had eaten much, his stomach was still growling.

  "Because you've come out to mix, sooner or later it's going to be returned." Zhong Jinwei inserted a famous saying for future generations, and his heart was secretly pleased.

  Chongzhen Emperor was a bit impatient and asked hastily: "Master Zhong, what did you say?"

  "Because these 200,000 taels are actually not truly backed by reserves, if the imperial court directly uses them, this time there might be no problem. However, once, twice, three times, and after that? The final result will inevitably lead to only one outcome: the paper currency in the hands of the common people will increase more and more, and they will eventually come to exchange it for silver due to fear of devaluation. As a result, an embarrassing situation will arise where there is not enough reserve to exchange, and credibility will be lost."

  "What should be done with these 200,000 taels?" The Chongzhen Emperor was extremely concerned about this issue.

  "Follow one principle: paper money goes out, physical goods come in; physical goods come in, paper money goes out."

  "Does Master Zhongxing mean that all banknotes must have corresponding reserve funds? Wouldn't that mean there's no extra 200,000 taels?"

  "No, it's not necessarily silver here. It can also be other assets, such as jewelry, ornaments, houses, land and other valuable things."

  "Master Zhong, tell us more carefully." The Chongzhen Emperor and Wen Tiren asked one question each, coordinating with Zhong Jinwei.

  "Take the previous example, didn't the imperial court get an extra 200,000 taels of paper currency? At this time, a commoner named Zhang San doesn't have any silver coins but wants to do some business or buy something urgently needed. He can use his house or other valuable items as collateral for a loan, and the imperial court will give him paper currency based on the value of his house after deducting a discount. In this way, the paper currency is put into circulation."

  Wen Ti Ren seems to have vaguely understood, isn't it just some of the current ticket number's business?

  Zhong Jinwei may not know Wen Ti's idea, but he said to himself: "While Zhang San has to return the paper money within the specified time limit, and pay a certain amount of interest or handling fees. In this way, after Zhang San returns the principal, the 200,000 taels of paper money printed by the court are still in the hands of the court, but Zhang San's interest is already in hand. Doesn't the court benefit from it?"

  "Your Majesty, the loan mentioned by Zhongxingbo and the Qingmiao Law of Wang Anshi in the Song Dynasty as well as usury among the people have similarities. However, it is even better."

  Zhong Jinwei watched as Wen Tianren reported to Emperor Chongzhen, but he didn't speak up, just observing how much Wen Tianren understood.

  "How can we outdo them?"

  "Qingmiao law and usury both require capital, but what Zhongxingbo said basically requires no capital. It's actually a swindle."

  The Chongzhen Emperor nodded his head, "Hmmm, I like this risk-free deal."

  However, I think Zhang San can also borrow from others, such as wealthy individuals, money houses, and ticketing companies. The interest on this loan may not necessarily be earned by the imperial court." Wen Ti-ren poured cold water again.

  Wen Tiren understood it quite well, and Zhong Jinwei nodded secretly in agreement. However, he didn't say anything about praising Wen Tiren, but instead answered his question: "The imperial court can compete with them, they can't outdo the imperial court. Moreover, the most important thing is that these money houses and ticket offices must be controlled by the imperial court, and only when they are mature will they be slowly released. The private lending of the people must be cracked down on. This is very important, it's closely related to the livelihood of the people."

  Then Zhong Jinwei temporarily let go of the bank issue for the time being and said to Emperor Chongzhen, "Your Majesty, this is just one of the benefits, there are still some that have not been mentioned."

  "Oh, Master Zhong, please continue." The Chongzhen Emperor shifted his gaze from Wen Tianren back to Zhong Xing.

  "This kind of paper money issued in the form of prepared gold can be imagined to ultimately not meet the people's demand for paper money. Because there is not that much silver. Even if gold is added as a reserve in the future, there will still be a day when it cannot be satisfied."

  "So what should be done?"

  "This transformation from this prepared gold form into credit paper money means that the prepared gold is no longer needed, and the court prints a total amount of paper money based on what the common people want to use."

  "Isn't that going down the old road of devaluation again?" Wen Tiren frowned.

  "So a recovery system is still needed. If it's found that the paper currency has a devaluation trend, then recovery should be carried out. The means of recovery can be guaranteed by the imperial court's next year's tax revenue to issue another paper currency to recover the previous one."

  The two ancient men were confused again, this paper money and that paper money had them dizzy.

  Zhong Jinwei looked at them and estimated that they understood, then explained: "The tax payment certificates for next year can be renamed as bonds, which are a bit special. Bonds can generate interest, which is also the reason to attract the common people to take out their paper money to buy these bonds. The bonds have a certain term, after this term, the court will collect them back and pay the principal and interest to the people who bought them."

  "Master Zhong, isn't that still giving him paper money?"

  "The key is in this period, for example, the court printed 200,000 taels of paper money this year, causing the devaluation of paper money. Next year, the court will use bonds to recover 200,000 taels of paper money and then return the 200,000 taels of paper money purchased by the people, so that the paper money will not depreciate."

  Actually, this also involves issues like economic development, but if you really want to explain everything in detail, Zhong Jinhua doesn't have the ability to do so, and people from the Ming Dynasty would probably find it hard to understand, so it's better not to mention it.

  The young man's thinking is still quick, and Chongzhen Emperor immediately raised a counter-question: "Master Zhong, are you still in the preparation stage of the Golden Elixir? Can't it be done this way too?"

  Zhong Jinwei did not expect that, first stunned, then thought carefully, and couldn't help but praise: "Your Majesty is really formidable."

  "Your Majesty, this can be done, but it's better to establish the credibility of paper money first."

  Chongzhen Emperor and Wen Tiren both nodded, but perhaps as the ruler of a country, he still remembered what Zhong Jinwei said earlier.

  He saw that Zhong Jinwei seemed to have stopped talking, so he asked: "Master Zhong, what you said earlier about grasping the country's neck with a handful of cash, what does it mean? You still haven't explained it, have you?"

  My current thrill is watching the numbers of clicks, likes, and collections slowly increase every day. Of course, there are even greater thrills, but for now, I dare not be too greedy since the word count is still low. Here, I'd like to thank friends who actively give me thrills. I'll work hard to write more, striving to maintain two updates a day.