Chapter 253: The First Step to Seizing Power: Gold Standard Reform
The Austrian government began holding more frequent economic meetings at the start of 1855, with a primary focus on currency reform as well as the handling of non-performing assets.
Because Austria lacked sufficient gold and silver reserves at the start of Franz’s reign, the government’s economic priority was maintaining the value of the national currency.
Austria was in a terrible situation with insufficient gold and silver reserves until a significant amount of gold and silver came into the country through trade with Russia during the Near East War. Thus, the conditions were met for a gold standard reform.
Currency reform is too broad an issue to be decided by Franz with a snap of his fingers. The cabinet government had held multiple discussions and still had not reached a consensus.
During the period, the majority of nations used either a bimetallic standard or actual gold and silver coinage. The number of nations using the gold standard was quite low.
Advocates of the bimetallic standard were engaged in a debate with supporters of the gold standard reform inside the government building. This concluded Austria’s discussion on the subject.
The winning perspective would dictate the monetary standard that Austria would follow for the foreseeable future.
The superiority of a system doesn’t lie in the system itself. What’s best is the most appropriate for the time. The best course of action is to adopt distinct monetary standards at different points in time.
To avoid becoming a martyr too far ahead of his time, Franz delegated the final decision to the elites of the era. The judgment of these professionals was far superior to his own as a layman.
Franz instructed, “This meeting is solely to discuss the monetary standard. Do not bring up any irrelevant topics or engage in personal attacks.
Please think carefully before voicing your opinion. Your opinions will determine the future of the New Holy Roman Empire and must consider all factors. Prime Minister, please chair the meeting.”
Let the underlings handle the disputes!
When it comes to persuading cabinet ministers, Franz wouldn’t mind intervening occasionally. But in such a public setting, it would be undignified for the Emperor himself to enter the debate.
Like Xiang Zhuang performing a sword dance, his target is actually the Duke of Pei, this currency reform isn’t so straightforward; otherwise, Franz wouldn’t have proposed the gold standard reform so early.
The deeper purpose of the currency reform is to unify the currency of the new Holy Roman Empire and centralize the coinage rights of the various states.
The time for power consolidation has come. The usually cautious Franz is naturally mindful of his manners now, ensuring that he gives ample respect on the surface.
A direct and abrupt change of the Austrian currency into the official currency of the Empire is obviously not advisable. What Franz wants to see is a united and harmonious Empire, not one that is full of internal conflicts.
Now, using the opportunity of currency reform, issuing a new currency to replace the original currencies of various states is intended to consider everyone’s feelings.
Regardless of the outcome, coinage rights will be centralized by the central government.
Prime Minister Felix responded, “Yes, Your Majesty!”
After a brief pause, he continued, “The final expanded meeting of the New Holy Roman Empire Currency Standard Conference is now in session. Please speak in order, representatives.”
There were many attendees, but only a few were qualified to speak. Apart from the various ministers in the cabinet, only representatives of the individual states had the qualification to speak.
Württemberg, Saxony, Frankfurt, Hesse, Lombardy, and Bavaria each had one representative, while Austria had four representatives.
This is based on the principle of appointing one representative for every ten million people (rounded up for fractions), with each state having no fewer than one representative, appointed by the respective state governments.
This system was personally designed by Franz with the primary goal of avoiding excessive talking that could lengthen the conference.
The outcome of the meeting will be determined by a joint vote of representatives from each state and five cabinet ministers. Well, this is a political show. A total of fifteen people can participate in the vote, eleven of whom are personally appointed by Franz.
Hans, the representative from Frankfurt, spoke, “Ladies and gentlemen, the gold standard system is not inherently bad. The problem lies in our domestic gold production not keeping up with the growth rate of commodities.
At the current rate of growth of our domestic industries, we would need to increase our gold reserves by at least ten to twenty tons annually to issue enough currency to maintain normal economic operations.
However, the current annual gold production of the New Holy Roman Empire can only meet a quarter of this demand. How can we fill this gap?
Rely on foreign trade, purchase gold from the international market?
The opportunity for war spoils, like in the recent Near East War, is gone. Achieving such a large surplus in international trade is nearly impossible.
To ensure the development of the domestic economy, the continuation of the current bimetallic standard system is the most suitable for us.”
According to the current exchange rate of the Austrian currency, this would mean an annual trade surplus of 14 million guilders, which is obviously an idealistic figure.
In reality, it would be even more difficult to convert this surplus into gold and transport it back to the home country to serve as a reserve for issuing currency.
Jungle, the representative from Bavaria, disagreed: “Mr. Hans, you are overly concerned. The insufficient gold production is not without solutions.
Since we will be eliminating the bimetallic standard, we no longer need to stockpile large amounts of silver. We can use that silver to buy gold on the international market.
Currently, many countries around the world have adopted the bimetallic standard, and there are few obstacles to exchanging silver for gold.
If necessary, we can leverage our position further as long as the government’s creditworthiness is assured and there is no deficit in international trade to prevent gold outflows that could lead to inflation.
Whether it’s the gold standard or the bimetallic standard, it all comes down to credibility. If the government does not have sufficient credibility, then only direct use of gold and silver as currency would work.
Moreover, the bimetallic standard is not as great as it seems. On the surface, with more silver as a reserve, we can issue more banknotes.
In reality, however, we all know that the gold/silver ratio is constantly changing. The discovery of a new gold or silver mine is enough to change the gold/silver ratio of the market, causing significant fluctuations in the currency market.
Under the bimetallic standard, the currency market frequently experiences fluctuations, and the potential currency value changes can seriously impact the development of domestic commercial trade.”
The two have almost covered the advantages and disadvantages of both monetary systems. Of course, if there is a sufficient gold reserve, the gold standard has the advantage. Otherwise, they would have to make do with the bimetallic standard. A credit-based standard was not even worth considering in this era.
When settling international trade, a solid gold and silver settlement system was preferred. Who would trust “credit” in this age?
They couldn’t just adopt a silver standard, could they? Everyone knows that current global silver production is increasing every year, and the gold/silver exchange ratio is on a downward trend.
If a silver standard is adopted, the currency market might stabilize, but it would be stable in a state of long-term depreciation.
At present, the rate of devaluation is not particularly rapid, but by the end of the 19th century, as more and more silver mines were discovered, the currency may suffer a catastrophe.
Representative Frank of Saxony opened the discussion by asking, “Before we address this issue, should we clarify how much gold and silver the government currently holds?”
“The total gold reserves of the central government of the New Holy Roman Empire, including the local governments, amount to 382.6 tons, and the total silver reserves amount to 8,728.9 tons,” replied Finance Minister Karl.
This figure surprised many, as most were unaware that the New Holy Roman Empire had amassed such significant gold reserves.
There was nothing particularly surprising about it. Ever since Franz had ascended the throne, the Austrian government had instinctively begun to increase its gold reserves.
In particular, when settling foreign accounts, they sought to minimize gold expenditures and opted for silver payments. Under the bimetallic standard, governments treated gold and silver equally.
During the Near East War, the Russians contributed a substantial amount of gold and silver to Austria, further bolstering the government’s reserves.
Within the gold and silver reserves of the New Holy Roman Empire, the Austrian government held a 90% share, naturally elevating the domestic gold reserves.
While this gold seemed abundant, it was only sufficient for the initial phase of the gold standard reform. With continued economic development, the need for these reserves would continue to grow.
During this era, the total amount of gold was limited, and before many countries implemented gold standard reforms, most gold was kept in private hands as a form of luxury item.
Upon hearing this good news, Jürgen, representing Austria and advocating gold standard reform, spoke up and said, “Our gold reserves are already considerable. If we implement the gold standard reform now, we can also buy gold from the private sector.
At present, most countries still use the bimetallic standard. If we reform the gold standard early, we can take advantage of the opportunity to exchange silver for gold.
As various countries begin to implement currency reforms, the loss of silver’s monetary status will inevitably lead to a significant price decline. In the end, not even one-third of its current value will likely be preserved.
From the point of view of long-term development, it is crucial to stabilize the currency. The British have taken the first step. If we don’t follow suit, we may suffer losses in the future.”
The gold standard system was originally proposed by the British, who began implementing it as early as 1823. With many overseas colonies, the gold extracted from these colonies was sufficient to support the adoption of the gold standard.
Most European countries couldn’t do it, even though they understood the benefits of the gold standard. Without adequate gold reserves, they were reluctant to follow suit.
The bimetallic standard of gold and silver emerged as an alternative when gold reserves were insufficient. If the New Holy Roman Empire were to enter the era of the gold standard, this topic couldn’t be avoided.
Hans, the representative from Frankfurt, shook his head and said, “Currency reform is very important. Once we take a step forward, trying to take it back comes at a high price.
Even if we scour the international market now, the amount of gold we can get is limited. Acquiring about 180 tons would be a significant achievement.
While we can sustain the early stages of a gold standard system, what happens ten, twenty years, or even longer, when we discover that our gold reserves are insufficient?”
After listening to Hans’ explanation, Franz finally understood why they were so adamantly opposed to gold standard reform — it came down to insufficient gold reserves.
The development of the New Holy Roman Empire was very rapid. As the economy developed, the amount of currency needed for market circulation naturally increased.
In this era, expanding the currency supply wasn’t merely a matter of printing more banknotes; it also required sufficient reserves or, in other words, a substantial amount of gold and silver to instill confidence in the government’s credibility among the populace.
The idea of extracting gold from the colonies persisted in Franz’s mind.
It seemed the most effective and reliable solution. South Africa had the most gold mines, but unfortunately, the coastal areas were already under British control. Unless they could bypass the coastal areas and access the inland areas, the prospect seemed distant.
Given the impracticality of this option, Franz quickly dismissed the idea. The inland regions of Africa were difficult to navigate, truly wild and undeveloped lands.
Even if transportation routes were established and gold mines were developed, they would still face competition from various European nations. Austria lacked the power to cut off access to the spoils, unlike the British Empire.
Franz didn’t want to invest significant capital only to have everyone else benefit equally in the end. He envisioned a scenario where Austria spent a significant amount of money, initiated the development, and ended up sharing the benefits. There was a risk that Austria might not even recoup its costs.
Reassessing other regions...
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