Chapter 255: Stirring Up a Storm
Vienna Palace
Franz’s wedding has officially been scheduled. In this matter, he couldn’t decide on his own. More than fifty million people in the New Holy Roman Empire were eagerly anticipating it.
An auspicious date had to be chosen. In case the day was filled with ominous clouds and continuous storms, wouldn’t that imply that God disapproved of this union?
In an ordinary household, such a situation might lead to complaining about bad luck, and for devout believers, there might be a possibility of canceling the wedding. However, if this were to happen in a royal family, it would undoubtedly become a major political scandal.
Despite the diminished influence of religious authority, such feudal superstitions still prevailed in the conservative region of Austria.
After consultation with a group of theologians who were also amateur meteorologists, the final auspicious date was set for March 12, 1855.
Preparations were already underway, and Franz had to check on the progress from time to time, which was a testament to his commitment to this union.
Marriage is a good thing, especially to someone you like. Well, Franz admitted that his feelings for Princess Helena were nothing special, but for an emperor, it was already considered fortunate to be able to marry someone he didn’t dislike.
Franz’s good mood didn’t last long as troubles soon followed.
“Your Majesty, our plan to buy gold has failed. The price of gold on the international market has risen by 20%, and continuing to buy would result in significant losses.
Through our investigation, we found that the rise in gold prices on the international market was orchestrated by the British, aiming to hinder our gold purchases,” said the Finance Minister, looking visibly exhausted.
It was evident that he hadn’t had a good night’s sleep in quite some time.
At a critical moment in the currency reform, the British raising the price of gold to prevent Austria from buying gold was undoubtedly a malicious move. Faced with such an incident, the Minister of Finance, who was leading the currency reform, was undoubtedly under tremendous pressure.
Franz frowned. Under normal circumstances, the British had no reason to obstruct the currency reform of the New Holy Roman Empire. An increase in the number of members in the gold standard system would also benefit them.
“Have you clarified the purpose behind the British actions?” Franz asked. He couldn’t believe the British were doing this just for profit. If their goal was to raise the price of gold and make a profit, they could have done it gradually.
As long as the increase was not too large, the Austrian government would have accepted it to increase its gold reserves.
To suddenly raise it by 20%, with such a significant disparity, only fools would continue to buy.
There was also a cost to forcing up the price of gold. Whether or not the capitalists who speculated on the price of gold were able to profit, once gold rose, the pound sterling, which was pegged to gold, would also rise.
This is equivalent to a sudden 20% increase in the value of the pound. With such a large increase, the cost of British industrial and commercial products would rise significantly. It would be difficult to maintain competitiveness in international trade.
Could it be that the British capitalists were weary of life and ready to play themselves to death?
It never occurred to Franz that this was being orchestrated by the British government. To do so would be killing 1,000 enemy soldiers but losing 800 of your own. Who would do such a thing?
Karl replied with an embarrassed look, “It’s supposed to prevent us from buying gold, making it impossible for us to gather enough gold as reserves.”
Even he didn’t believe that explanation. Austria, too, was an old empire with deep foundations. If the government was willing to pay the price, it could accumulate gold reserves domestically for the gold standard.
As long as the government’s credibility was high and it was recognized by the market, it could successfully implement the gold standard reform even if there was a slight shortage of gold reserves.
Ultimately, the issuance of paper currency depends on the credibility of the government. The Russians serve as a counterexample; they were not worried about insufficient reserves, but their earlier paper rubles were not accepted by the public.
The British couldn’t directly undermine market confidence in the New Holy Roman Empire, could they? If they had that power, they would have used it to threaten the Austrian government during the Near East War.
Franz sneered, “Keep investigating. If we can’t buy gold, so be it. We were prepared for this. The gold for the currency reform is just enough.
The remaining shortage is not much, in the worst case, we can trade with countries that use gold and silver currencies. While the British can raise the price in the European gold trading market, I don’t think they can raise the price of gold around the world.
We’ll keep up the appearance of continuing to buy gold and let the British keep the gold price high. Let’s see how long they can keep it up!”
The lack of smooth communication was the biggest drawback of this era. In areas with poor information flow, the gold-silver ratio still maintained its original state.
To raise the global price of gold, the British would have to maintain high gold prices in Europe for several years. Otherwise, many regions outside Europe wouldn’t follow suit.
If the British really did this, Franz would laugh. Delaying the gold standard reform by a few years wouldn’t be a big deal. It wasn’t urgent, and postponing it for a year or two wouldn’t be fatal.
He wondered whether British industry and commerce could withstand it. The increase in production costs due to the rise in the value of the currency would inevitably require a significant reduction in the international competitiveness of British goods.
Of course, profits from overseas trade were relatively high in this era. Franz believed that capitalists engaged in long-distance trade could still make a 20% profit margin by taking such significant risks.
It was still possible to remain competitive without raising prices. However, trading on the European continent might not be as profitable.
Even though the British were the world’s leading industrial power, that didn’t mean they had an advantage in every sector. These industries might not survive the blow.
Franz even entertained the idea of artificially inflating the pound to undermine British industry and commerce, but he quickly suppressed that notion.
With Austria’s limited capital, engaging in a direct confrontation with British capital in the financial markets was almost a guaranteed loss.
London
The Grenville Cabinet was stunned. They had indeed raised the price of gold, but they hadn’t planned for such a large increase all at once!
The original plan was to raise it only a few percentage points, hoping that the Austrian government would see the difficulty and accept their terms. But they weren’t prepared for such a significant rise in the price of gold.
Unfortunately, they overlooked a group in this world — speculators.
Excessive capital in Britain had long been a problem. Now, with rapid economic growth in the United States and Austria, both of which relied on British capital, the government’s move to raise the price of gold received widespread attention. This rise went beyond their control.
The British government now had two options: either immediately sell a lot of gold to calm the storm in the capital markets, or devalue silver. If they devalued silver, the price of silver would fall and the current high exchange rate would return to normal.
One of the reasons gold is being sought so fervently now is the impending reform of the gold standard in the New Holy Roman Empire.
Once the Austrian government completes the currency reform, the New Holy Roman Empire will undoubtedly not hold as much silver. The influx of this silver into the market will inevitably cause a significant drop in the price of silver.
Speculators have keen eyes, and with the most basic information at hand, they have judged that the future price of silver will fall, and have begun to act.
To some extent, even if the British government does nothing, this situation will still occur. The rise in the gold-silver exchange ratio is an unstoppable trend.
The decision is a difficult one, and any action will have far-reaching consequences.
If they sell gold to calm the turmoil and stabilize the value of the pound, the plan to prevent the Austrian government from buying gold will be foiled. If they want to bring the New Holy Roman Empire into their pound-gold system in the future, they will inevitably have to pay a higher price.
Certainly, there are gains as well. The British government will make a profit from this operation, which can compensate for its wounded pride.
However, the devaluation of silver also has consequences. The most direct effect is the devaluation of the currencies of the silver-standard countries, which affects the economic aspects of these countries, especially making their exported goods more competitive.
Under this situation, which harms one side while benefiting the other, it will also affect exports of British industrial and commercial products, which in turn will affect the British economy.
Prime Minister Grenville anxiously asks, “Does the Treasury have any plans to quell this turmoil?”
Without hesitation, Chancellor of the Exchequer George Grey replied: “Prime Minister, the best course of action now is to sell the gold we have bought and allow the market to return to normal.
This is the method with the least impact on the domestic economy. Since we bought at a low price, selling now can still earn us a profit.
And it must be done quickly. The Austrian government has not abandoned its plan to buy gold. This is practically stimulating the nerves of speculators.
They may have already discovered our plan and deliberately made a seemingly inevitable move just to see us in a tight spot.
If we delay for too long, with more speculators joining in, it will be difficult to calm this storm when the time comes.”
The gold purchased by the government and the reserve for issuing currency are completely different concepts, even managed by two different systems.
In the gold standard era, governments couldn’t arbitrarily decide to reduce or increase reserves; these actions had to be based on actual needs.
The consequences of rash action were already being felt by the British government. A wrong signal unleashed a rush of speculators, and the final results were disastrous.
Because gold is a universally accepted hard currency, it simply won’t depreciate much in the eyes of many people. Even if there is a loss, it won’t be too harmful.
After much hesitation, Prime Minister Granville made a decision: “Regardless, we must first quell the turmoil in gold prices and stabilize the exchange rate of the pound.
The Treasury should immediately start selling gold, and we need to communicate with domestic financial institutions. We require their assistance!”
Despite knowing that this decision would come at a significant cost, Prime Minister Grenville chose to seek assistance from the financial institutions. Relying solely on the power of the British government would likely prove insufficient to calm the storm in a short period.
This content is taken from fr(e)ewebn(o)vel.𝓬𝓸𝓶