Reborn In 17th century India with Black Technology - Chapter 1117

Chapter 1117: Fractional reserve banking

4th February 1694

Simhasana Bhavana, Imperial Capital Bengaluru, Akhand Bharatiya Empire

Vijay, reading the report about the growth of the heavy industry in the Empire, driven by automobile manufacturing, was extremely happy. However, what made him even happier was that, aside from the boom in the stock market and the economy, it was the talent and the immigrants that the Bharatiya Empire continued to attract.

Every year, the Bharatiya Empire welcomes over 50 to 60,000 students and 20 to 30,000 people who are looking to settle and become citizens from around the world, a majority of them from the eastern hemisphere and about 20 to 30% from Europe, but after the empire started exporting automobiles, which attracted attention worldwide, in a matter of three months the applications from foreign students who wanted to study in the Bharatiya Empire shot up by 400%, and, more importantly, the people who wanted to settle in the Bharatiya Empire and become its citizens shot up by a whopping 500%. What was more surprising was that the majority of them were Eastern European, especially the serfs and lower-class citizens.

Vijay was extremely happy that the Bharatiya Empire was regaining its past glory, a past when it attracted scholars from all over Asia to its university, where essentially students had to go to other countries in order to even qualify to enter the University of the Bharatiya Empire.

But when he turned to the next page, where the GDP estimates were recorded, his eyebrows twisted into a frown, not because the estimates were low, no, in fact the GDP per annum of the Bharatiya Empire has been constantly over 20%, and this year the empire is on track to surpass a 100 billion Varaha in terms of GDP, what was bothering him was something else.

Vijay was in thought for a long time until he finally decided on what to do.

” Ganesh, invite the Prime Minister, the Minister of Finance, the Director of the Reserve Bank, and the Director of the monetary press ”

Ganesh was taken aback. ‘Why would these people be summoned so suddenly?’ he thought to himself, but in the end, without uttering a word, he silently left the office to fulfil his obligation.

Somewhere in Nagpur

Manoj Bajpayee had a leisurely life. It had been nearly four years since the printing of the currency had stopped, and being the director of the monetary press of Bharat, he was left with nothing else to do. The only thing he had to worry about was the reprinting of the currency that was damaged beyond use.

He was in the printing house, as always, overseeing the printing of the currency, but to his surprise, he was called by his assistant to the office and handed a letter of summons from the emperor’s office.

Bajpayee was shocked. Without any delay, he got into a car and headed straight for the capital, carrying a list of documents that His Majesty might request. After all, he had no idea why the emperor was summoning him.

The situation was similar with the Minister of Finance, Jagannath Mohan, and the Prime Minister, Narasimha Modi, but they were used to being summoned by the emperor once in a while, so their reaction was less intense, and this allowed them to systematically prepare for the meeting with all the necessary documents.

One advantage for them was that they were in the capital, so since the time for the meeting was scheduled for the next day, they had more time to prepare and more time to investigate what the emperor might be finding them for.

6th February 1694

“Greetings, your majesty”

“Long live your majesty, long live”

As soon as the ministers and the directors entered the conference room, they respectfully greeted Vijay and sat down after he motioned them to.

Vijay didn’t beat around the bush and came directly to the point: “How much money is currently in circulation?”

Manoj Bajpayee, the director of the monetary press of Bharat, was about to answer the question, but the director of the Reserve Bank, Dharmendra, beat him to it, “We have 73.88 billion Varaha’s circulating in the empire, your majesty, backed with a gold reserve of 850 tonnes at an exchange rate of 314 Varaha per 3.4 gm of gold.”

Vijay nodded, but then he shook his head, “It’s not enough,” he said with a frown.

The Minister of Finance, Jagannath Mohan, became worried, “Do we have to procure more gold, your majesty?”

Hearing the question, Vijay simply shook his head.

Normally, the gross domestic product of a nation is usually more than the amount of money in circulation, since GDP is nothing but the value of goods and services derived from the money in circulation and not the money itself, but still, with there being only 73 billion Varaha in circulation and GDP reaching more than 100 billion, it is not healthy. Not to mention, with the mindset of the Bharatiya citizens, they prefer holding money rather than spending it, so the actual money in circulation might only be around 50 to 60 billion, with more than 13 billion stashed away.

Such numbers might not be a problem in the future, since having a GDP of 4 to 5 times the money issued is actually considered common across European economies, but those currencies are trust-backed currency, and what the Bharatiya Empire currently has is 100% gold-backed currency.

After staying silent for a few moments, Vijay finally spoke out, “Adding more gold into the Treasury is not going to cut it, since what I want to do is not increase the money in circulation by 10% or 20%, but by a whole 100%. I want to double the money in circulation.”

It was as if an earthquake had just shaken the ground. Everyone in the room was stunned, including the Prime Minister, whose jaw dropped and eyes widened, but he couldn’t be blamed. To double the money in circulation, the Bharatiya Empire would have to find over 850 tonnes of gold from somewhere. How could that even be done? He was almost desperate, ready to fall to the emperor’s knees and beg for mercy.

But then his mind began to spin. ‘Wait, did His Majesty say the gold is not going to cut it?’ He suddenly remembered what the emperor had said and calmed down a little.

The director of the Reserve Bank of Bharat, Dharmendra, also caught on to this point after understanding the Emperor’s words, and he suddenly had a realisation, “Do you suggest using other precious metals as an alternative, your majesty?” He thought this was most likely the case and felt like it was not a problem. Silver was much easier to find than gold, and although it would be difficult, it would not be a problem to double the amount of money in circulation in a few years. But to his surprise, the emperor shook his head.

“No, we will not use any other precious metal either.” The eyebrows of Narasimha Modi jumped, but before he could voice out his question, as if the emperor already knew what he was going to ask, he looked at him and shook his head, “We’re not going to use the temple gold either. The money of the devotees will only be used for the purpose of the devotees, not for governance.”

Everyone was confused. What else were they going to do? Thankfully, the next moment, the Emperor finally revealed his idea.

“We’re going to fractionalize the gold-backed system.”

But this left them confused, “Fractionalize?” Dharmendra asked with bewilderment.

“Yes, Fractionalize.”

Vijay explained, “Meaning, for the same gold, money will be printed, and it is not through devaluation.”

The expressions on everyone’s faces were still clueless, so Vijay explained further

“Currently, we have 73.88 billion Varaha issued in the form of legal currency, with 314 Varaha needed to exchange with 3.4 gm of gold, but what we will do is we will print 73.88 billion Varaha of currency again and invest it into the market, but with the value of gold staying the same at 314 Varaha for 3.4 gm.”

Hearing this, everyone frowned. ‘What was his majesty thinking?’ Narasimha Modi was bewildered.

“Your majesty, by doing this, will it not cause problems since we will not have gold to exchange if more than 50% of the people want to redeem it?” Jagannath Mohan immediately understood the concept and asked.

Currently, each and every Varaha in circulation could be exchanged for a certain amount of gold, but if his majesty’s idea is implemented, only half of the money in circulation would be worth anything; the rest would be simple paper with not much value, or it would be devalued by half, causing a crash in the market.

Dharmendra, Manoj Bajpayee, and Narasimha Modi nodded. They all thought that it was a bad idea.

Vijay, facing the doubtful expressions and the sharp question, was not surprised. After all, even in his past life, when countries issued fractionalized currency, there was a lot of opposition. “What you said is true, but it is basically impossible to occur. After all, since we issued paper currency as the legal tender, how many people still trade using gold or silver?”

This left Jagannath Mohan stumped, but Dharmendra, the director of the Reserve Bank, answered the question, “On a day-to-day basis, of a normal citizen, we do not have the data, your majesty, but for business affairs, nearly 85% of all businesses are currently using cash-based transactions, and only rarely use gold or silver as the currency. ”

Vijay stretched out his hands as if to say, ‘There you have it.’

“Since everyone already uses the paper currency, they are very unlikely to exchange the money for gold all at the same time, and we are safe as long as everyone doesn’t ask to convert their money into gold.”

“On the bright side, we will immediately have over 147.76 billion Varaha in circulation, accelerating economic growth. Additionally, we can begin encouraging foreign nations to adopt the Varaha for trade instead of relying on minerals, as is currently the case. This shift could position the Varaha as a global reserve currency, with countries holding it in their reserves in place of gold or silver, thereby further stimulating international trade and economic prosperity.”

Jagannath Mohan’s eyes lit up. “Your majesty, then the prerequisite is to keep this matter secret for as long as possible?” He asked.

Vijay nodded.

“The issuance of the 73.88 billion Varaha will be gradually carried out over the span of half a year, but this issuance will not enter the market directly; instead, it will be deployed in the form of investments.”

“Around 40 billion, that is 54%, will be invested in infrastructure, such as railways, ports, and roads. Approximately 20 billion, or 27%, will be allocated to international trade as credit to nations and subsidies. Ten billion, or 14%, will be directed towards industrial expansion in mines, steel, and shipbuilding. The remaining 3.88 billion Varaha, equivalent to 5%, will be maintained as a reserve.”

“In this manner, the funds will gradually permeate the market through multiple channels, preventing any single sector from rising disproportionately due to the influx of money.”

“Furthermore, as you mentioned, the issuance will be conducted without public disclosure. This information must remain confidential for at least a year or two. Once we have established profitable trade and strengthened the economy, we can make a public announcement, perhaps emphasising a 50% gold backing, positioning ourselves as the world’s strongest economy.”

“I am confident that when we make the announcement, there may be some bank runs, but we can prepare for this. We can also publicise that 3.4 grams of gold will still be valued at 314 Varaha. By demonstrating that the Varaha’s value remains stable, especially as it becomes a reserve currency in the countries we trade with, we reinforce confidence in it.”

“This will be a project that requires at least two years or more to show tangible results, so operations should commence immediately.”

“Narasimha.”

Narasimha Modi immediately responded, “Yes, your majesty.”

“The matter of secrecy is your responsibility. I will talk with Selvan about this, but make sure that it is kept secret using the channels of the government.”

“As you wish, your majesty.”

“Dharmendra.”

“Your majesty.”

“The same goes for you. The banking sector should not notice the anomaly at any cost until we have the results.”

“And lastly, Manoj.”

“Yes, your majesty.”

“You can start printing the money on a large scale.”

“Right away, your majesty.”

Vijay nodded in satisfaction and finally added, “If more than 10 major aligned countries start using Varaha as the reserve currency and the currency of international trade, we can fractionalize the gold standard to 33%, giving us the ability to print 221.64 billion Varaha. And if it becomes the dominant currency reserve, we can even bring it down to 25%, bringing up the total money in circulation to 295.52 billion Varaha.”

“In short, we will be able to create currency worth over 3200 tonnes of gold, and GDPs worth at least twice or thrice that, only by leveraging the 850 tonnes of gold in the treasury, reducing the empire’s dependence on gold to prosper the economy.”

P.S. The date has been updated

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