King-Chapter 1411 - 277: Paper Money_3

Unfortunately, the speculation was incorrect. The Ministry of Finance’s accounts are very clear: the Kingdom Government indeed spent that much money.

It wasn’t due to a significant rise in daily government expenses, but rather because the total debt exceeded its limits, setting the government on an irreversible path of continuous debt growth.

"Your Majesty, the current total government debt amounts to 720 million Gold Coins, which includes:

million in War Bonds;

million in international loans;

million in bank mortgage loans;

million in unpaid invoices for strategic material procurement;

and approximately 50 million Gold Coins in deferred wages for government officials.

If we trace back further, the procurement debts and salary arrears only account for the last ten years.

If we continue to look further back, the total government debt would be even higher.

While some debts can be delayed, the trouble lies with the first three items, as they require significant interest payments every month.

Relatively speaking, the 80 million international loan is better—political factors mean half of it is interest-free, and the other half has a low-interest rate of only 2%.

However, the interest rates on the War Bonds and bank loans are generally in the range of 6% to 15%, and the overall average rate is about 8%.

Each year, government interest payments alone amount to a staggering 23.2 million Gold Coins, which far exceeds our fiscal capacity!"

As soon as Count Francis finished speaking, the smiles on everyone’s faces disappeared. The last time this topic was discussed, the government’s total debt seemed to only be over 600 million, and the time before that, it was over 500 million.

At this rate of growth, avoiding bankruptcy would be nearly impossible!

Though anxious, no one questioned the problem itself. The continuous rise in Kingdom debt, besides the war expenditures, was also caused by a fatal practice: borrowing new funds to repay old debts!

What appeared as mere financial maneuvering always resulted in an increase in the total debt.

The 40 million in bank loans was entirely generated from this cycle of borrowing to repay. This includes all domestic commercial banks, such as the Near East Development Bank, which are now creditors of the Alpha Kingdom government.

Compared to private borrowing, the Ministry of Finance has, one might say, done a great job controlling financial costs. A total debt of over 700 million with annual interest payments just exceeding 20 million is already astonishingly low.

From the data, it may seem as though the government has never defaulted, but in reality, it has long been in debt default.

Unpaid wages for officials and procurement debts were simply dragged out into oblivion because the treasury couldn’t pay them in full.

Of course, the procurement costs from old deals were mostly covered, with only the profit margins not fully paid.

The surge in unpaid debts over the last decade was primarily due to continuous wars leaving no breathing room for the Kingdom Government.

Had there been even a 10- or 8-year respite, the Ministry of Finance wouldn’t need to rely on promissory notes to procure strategic supplies.

This situation now burdens not only the major Kingdom merchant guilds but also countless Noble Lords, who are heavily indebted as well.

Fortunately, limited liability systems are not in vogue these days; otherwise, it’s likely that Kingdom-wide merchant guilds would collectively declare bankruptcy, transferring their losses onto other business partners.

At this moment, the Kingdom Government has no means of filling its massive fiscal hole—it can only rely on the Noble Lords themselves to take proactive action.

As long as they can seize enough, individual Noble Lords may still manage to escape their financial crises.

"Aside from bankruptcy, is there no other solution?"

King Caesar IV asked again.

Clearly, he still had some moral boundaries. However, his once ironclad opposition to bankruptcy was noticeably less firm.

It was all thanks to the bad example set by their neighbor, the Moxi Duchy. Originally, it was thought the Duchy would sink into ruin after declaring fiscal bankruptcy.

Never in anyone’s wildest imagination did they expect the debt-laden Moxi Duchy to survive, with its government catching its breath as it only had to repay a fixed annual debt amount thereafter.

Perhaps it was the reduction in annual capital outflows, or perhaps it was the influx of downtrodden Nobles and freemen from the Northern Continent. Over time, the Duchy’s private-sector economy revived, and the government’s fiscal revenues surged as a result.

When the Great War against the Orcs erupted, the Moxi People not only provided material support to the Alpha Kingdom but also extended an interest-free loan of 8 million Gold Coins—leaving King Caesar IV utterly stunned!

The Alpha Kingdom government’s desire to declare bankruptcy was, in truth, spurred largely by the Moxi example. If their neighbor could rise from the ashes post-bankruptcy, so could the Kingdom.

However, the bankruptcy proposal was not only opposed by King Caesar IV but also met with vehement objection from Hudson.

While others were unaware of the Moxi Duchy’s underlying assets, Hudson knew full well. Without substantial financial backing, there would’ve been no rebirth—keeping the Duchy from splintering apart would itself be a feat.

If the Alpha Kingdom government were to declare bankruptcy, it would drag the major merchant guilds, numerous commercial banks, and Noble Lords into collective collapse.

Though immediate repayment might not be feasible, so long as there’s hope for eventual resolution, everyone can still cling to a semblance of optimism.

This was Hudson’s doing: the establishment of commercial banks had greatly stimulated financial market development.

Driven by profit motivations, government-endorsed debt IOUs, touted as being as safe as national bonds, naturally became tradeable commodities.

Men die for wealth, as birds risk their lives for food.

As long as prices were low enough, there were always risk-takers willing to gamble on them. Most banks and merchant guilds in the Kingdom accepted these IOUs as collateral, forming an immense industrial chain.

If Hudson hadn’t explicitly prohibited the Near East Development Bank from participating, the Kingdom’s entire financial system would’ve been dragged into the chaos.

Not directly engaging in trade doesn’t mean immunity from its impacts. If widespread defaults occur, the Near East Development Bank’s trading platforms would inevitably take a substantial hit.

"Perhaps we should consider issuing paper money to replace the circulation of Gold Coins, thereby raising sufficient funds.

The gold tickets issued by the Near East Development Bank have been hugely successful; people are already accustomed to using them in bulk commodity trading.

However, the risks are significant. Outside the success of the Near East Development Bank, many banks—including some in the South Continent—have tried this and ultimately failed!"

Count Francis answered hesitantly.

"Your Excellency, issuing paper money will be challenging. Not to mention regular citizens, even we ourselves would struggle to accept someone taking a piece of paper in exchange for our Gold Coins!

While the Near East Development Bank’s gold tickets appear to function similarly to paper money, there is an essential difference in their nature.

Their success came from tying these tickets to the ability to purchase unrestricted goods in the Mountain Domain and Snow Moon Territory, including valuable Magic Potions!

Even so, people mainly use these gold tickets in bulk commodity transactions; after finalizing deals, many promptly convert them to Gold Coins and deposit them in bank accounts.

In normal times, it’s rare for anyone to hold a large volume of gold tickets.

Externally, gold tickets are seen only as a tool for facilitating large-scale commodity exchanges. The Near East Development Bank is simply making a profit by collecting transaction fees!"

Prime Minister Duke Delgado immediately objected.

Bold innovations are admirable, but the risks must be considered!

Without the unified backing of the Kingdom’s Major Nobles, leading by example by exchanging their Gold Coins for paper money, it would be impossible for paper money to enter circulation.

This 𝓬ontent is taken from fre𝒆webnove(l).𝐜𝐨𝗺