Holy Roman Empire

Chapter 253: Chapter 2: The First Step to Seizing Power – Gold Standard Reform
After entering the year 1855, the Austrian Government’s economic conferences became more frequent, focusing not only on handling bad assets but also, more importantly, on currency reform.

Unlike at the beginning of his reign, when Austria’s reserves of gold and silver were insufficient, stabilizing the currency became the primary focus of the government’s economic efforts.

During the Near East War, a significant inflow of gold and silver through trade with Russia eased Austria’s shortage of reserves, laying the groundwork necessary for a gold standard reform.

Monetary reform encompassed too wide a range and couldn’t be decided by Franz with just a snap of his fingers. The Cabinet Government had debated multiple times and still hadn’t reached a consensus.

Most countries now employed a bimetallic standard system, or used gold and silver directly as currency, while there were few truly gold standard countries.

Inside the government building, those in support of the gold standard reform were debating with advocates of the bimetallic standard system; this was Austria’s last debate on the matter.

The viewpoint that emerged victorious would dictate Austria’s monetary system for the foreseeable future.

Better or worse actually didn’t depend on the system itself. The most suitable was the best, and adopting different standards at different times was the optimal choice.

To avoid being prematurely labelled a martyr for being too far ahead of his time, Franz left the final decision to the elite of this era. The judgment of these professionals was far superior to that of an outsider like him.

Franz instructed, “This meeting is only to discuss the currency standard system; any off-topic discussion is prohibited, as are personal attacks.

Think carefully before you speak. Your opinions will determine the fate of the New Holy Roman Empire for the future; you must consider all factors comprehensively.

Prime Minister, you shall preside over the meeting.”

Let the underlings handle the quarreling!

If it were about persuading Cabinet Ministers, Franz would not mind occasionally stepping in himself. But in such a public occasion, for the Emperor to personally engage in debate would be in poor taste.

Just as one brandishes a sword with a hidden motive against Duke Pei, this currency reform was naturally not so straightforward, otherwise, Franz would not have proposed a gold standard reform so early.

The deeper purpose behind the monetary reform was to unify the currency of the New Holy Roman Empire and consolidate the coinage rights of the various sub-states.

When it was time for a power grab, the ever-cautious Franz was naturally keen on maintaining appearances; respect had to be given first and foremost.

Directly and bluntly turning Austrian currency into the Empire’s legal tender was obviously undesirable. Franz wanted a united empire, not one fraught with contradictions.

Now, by seizing the opportunity of standard system reform and introducing new currency to replace each country’s existing money, he was trying to be considerate of everyone’s feelings.

After all, regardless of the final outcome, the coinage rights would be taken away by the Central Government.

Prime Minister Felix responded, “Yes, Your Majesty!”

He paused, then added, “The final expanded meeting of the New Holy Roman Empire’s Currency Standard Conference will now begin. Representatives will speak in turn.”

There were many attendees at the meeting, but few were qualified to speak; besides the Cabinet Ministers, only representatives from each sub-state were entitled to speak.

One representative each from Württemberg, Saxon, Frankfurt, Hesse, Lombardy, and Bavaria, and four from Austria.

This was based on the principle of one representative for every ten million people (rounded up in the case of fractions), with each sub-state having no fewer than one representative appointed by its government.

This system was personally designed by Franz chiefly to prevent too many voices from delaying the meeting.

The final decision of the meeting would be determined by a vote of the sub-state representatives and five Cabinet Ministers. Well, this was political showmanship; of the fifteen eligible voters, eleven were personally appointed by Franz himself.

The representative from Frankfurt, Hans, spoke up, “Gentlemen, the gold standard system is not bad, but the problem is that our domestic gold production can’t keep up with the growth rate of goods.

Given the current growth rate of our industry and commerce, we need to increase our gold reserves by at least ten to twenty tons per year to issue enough currency and ensure the economy runs smoothly.

Currently, however, the New Holy Roman Empire’s annual gold production can only meet one-quarter of this requirement. How do we compensate for the rest of the shortfall?

Do we rely on international trade to purchase gold from the global market?

The Near East War has ended, and such wartime financial opportunities are gone forever. Achieving such a large trade surplus in international trade is virtually impossible.

To guarantee the development of our domestic economy, continuing the current bimetallic standard system is the most appropriate for us.”

Based on Austria’s current currency conversion, this meant that the annual trade surplus needed to reach fourteen million shields, which was clearly an idealistic number.

In reality, exchanging that for gold to transport back home and use as reserve currency for issuance was an even greater challenge.

The representative from Bavaria, Jungler, objected, “Mr. Hans, you are worrying too much. The shortage of gold production can be solved.

Since we have abolished the mixed gold and silver standard, there’s no need to keep a large stockpile of silver; we can use this silver to buy gold on the international market.

Currently, many countries in the world are on a bimetallic standard system, and exchanging silver for gold is virtually unobstructed.

If push comes to shove, we can also increase the leverage ratio. As long as the government’s credibility is maintained and there are no deficits in international trade that cause gold outflows, inflation will not occur.”

Whether it’s the gold standard or bimetallism, in the end, it all comes down to credibility. If the government lacks sufficient credibility, using gold and silver as currency is the only alternative.

Moreover, the bimetallism system isn’t as perfect as it seems. On the surface, having more silver as reserve allows us to issue more banknotes.

However, we all understand that the ratio of gold to silver is constantly changing. The discovery of a new gold or silver mine could change the market’s ratio of gold to silver, causing strong fluctuations in the currency market.

Under the bimetallism system, the currency market is often volatile, with potential changes in currency values occurring at any time, seriously affecting the development of domestic commercial trade.”

The two of them had nearly discussed the pros and cons of both standards. If there are sufficient gold reserves, naturally, the gold standard has the advantage.

Otherwise, one must make do with the gold and silver bimetallic standard. The credit standard is not even worth considering, as it simply wouldn’t work in this era.

When it comes to settling international trade, why would anyone rely on “credit” if they could settle in gold and silver?

It’s not like anyone could solely rely on the silver standard, right? Everyone knows that the world’s production of silver is increasing every year, and the exchange ratio of gold to silver is on a downward trend.

If the silver standard were adopted, the currency market would stabilize, but it would stabilize in a state of long-term devaluation.

The rate isn’t all that fast now, but by the end of the 19th century, with more and more silver mines being discovered, what would become of the currency then?

The Saxon representative, Franz, speaking up, asked, “Before we discuss this matter, should we not first clarify how much gold and silver reserves the government currently holds?”

“The New Holy Roman Empire’s Central Government and local governments combined have a total of 382.6 tons of gold reserves and 8,728.9 tons of silver reserves,” Finance Minister Carl replied.

This figure was somewhat unexpected to everyone, as many did not know that the New Holy Roman Empire already had such substantial gold reserves.

There’s nothing surprising about this. Ever since Franz ascended to the throne, the Austrian Government consciously began to increase its gold reserves.

Specifically, when settling accounts abroad, minimize the outlay of gold and pay with silver instead. After all, under the bimetallic standard system, governments view gold and silver with the same attitude.

In the wars in the Near East, the Russians contributed a significant amount of gold and silver, boosting the Austrian Government’s reserves.

In the gold and silver reserves of the New Holy Roman Empire, the Austrian Government accounts for ninety percent, naturally increasing the domestic gold reserves.

Though these gold reserves may seem substantial, after initiating gold standard reforms, they are only just enough for initial use. With continuous economic development, these reserves will need to keep increasing.

The total amount of gold in this era is limited. Before countries implement gold standard reforms, most of the gold is held privately as luxury goods.

Hearing this good news, the Austrian representative, Eugen, who advocates for gold standard reforms, said, “Our gold reserves are already quite substantial. If we undertake gold standard reforms now, we can also purchase gold from the public.

Currently, most nations are on the bimetallic standard. If we move to the gold standard early, we can exchange silver for a batch of gold in the meantime.

Once all countries begin currency standard reforms, the value of silver, which will have lost its currency status, is bound to plummet. In the end, it’s expected to retain perhaps only a third of its current value.

From a long-term development perspective, stabilizing the value of currency is crucial. The British took the first step; if we do not keep up, we will suffer later on.”

The gold standard was initially proposed by the British. As early as 1823, the British began implementing the gold standard, with enough overseas colonies to extract the gold needed to support it.

This is something most countries in Europe cannot do. Even though the benefits of the gold standard are known, without enough gold reserves, no one dares to follow rashly.

The gold and silver bimetallic standard is the alternative when gold reserves are inadequate. If the New Holy Roman Empire enters the gold standard era, this topic cannot be avoided.

The representative from Frankfurt, Hans, shook his head and said, “Currency reform is a major issue. Once a step is taken, the cost of retracting it is more than trivial.

Even if we sweep the international market for gold, the quantity we can gain is limited. It would be quite an achievement to exchange for a hundred and eighty tons.

We can support the establishment of the gold standard initially. However, ten years later, twenty years later, or even longer, what should we do when we realize our gold reserves are inadequate?”

Afer listening to Hans’s explanation, Franz finally understood why they were firmly opposed to gold standard reforms. The root issue was the insufficiency of gold reserves.

The New Holy Roman Empire is developing quickly. As the economy grows, so naturally does the need for currency circulation in the market.

In this era, increasing the volume of currency circulation is not just about printing money; it also requires sufficient reserves or, in other words, enough gold and silver to assure public confidence in the government’s credibility.

The idea of obtaining gold from colonies appeared in Franz’s mind, and once there, it became persistent.

This is the most effective and reliable method. The most abundant gold mines are in South Africa, but alas, the British have already occupied the coastal areas, leaving only the option of bypassing them from the interior – an unreliable proposition.

Such a dubious method was quickly dismissed by Franz. The interior of Africa is no easy area; it is indeed Savage Land.

Even if the trade routes were secured, and gold mines were developed, they would still face competition from European nations. Austria is not the Great Britain Empire and lacks the ability to block others from reaping the benefits at sea.

Franz had no desire to make a wedding dress for others, to invest considerable resources only to have others join in the spoils. It’s likely that Austria wouldn’t even recover the initial investment.

Once again, he considered other regions…