November 11th, 1655
Dakshin Bhartiya Empire, Vijayanagar state, capital city - Hampi,
At the Royal Palace in Hampi, Vijay, along with Jagannath Mohan and Rajesh, who were the ministers of trade and commerce and ministers of finance, joined together in a meeting to discuss the progress of the transition from metal currency to paper currency.
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"So, how is the transition going on?" Vijay inquired with a serious expression. Paper currency was one of the biggest prerequisites for an industrialized society. With the existence of paper currency, the empire’s economy would not be held back by the immediate unavailability of gold.
"It is going better than expected, Your Majesty. With the active cooperation of all the stores at the defence line, acceptance within the military has been increasing since yesterday morning, the time when the currency was released. Also, the majority of the currency issued to military personnel has trickled back into society," Rajesh replied with a positive answer.
Vijay nodded his head, satisfied with this information. Then he looked at Mohan, who had a worried expression on his face.
"Well, what Minister Rajesh said is true, Your Majesty. I am worried that there is no lower denomination of currency, which increases the difficulty of trade and could hinder the transition of the currency if we cannot find a solution for this quickly," Mohan expressed his concern.
This presented a fresh challenge for Vijay, who had been pondering solutions to address this issue. Despite the new 1 Varaha coin being valued at only 0.1 of the old gold coin, equivalent to approximately 0.3 grams of gold in weight and worth, it still represented a substantial sum.
This was particularly significant amidst the current backdrop of escalated gold prices due to the ongoing war and the halt in production. Looking ahead, with the projected value of gold soaring to around 6000 rupees per gram on average in vijays past timeline, the one Varaha coin’s value would remain too high for the general populace.
Before divulging his solution, Vijay posed a question, "Mohan, has the Finance Ministry ceased the circulation of silver and copper coins in the economy?"
Jagannath Mohan promptly shook his head, responding, "While we’ve retained approximately 20% of the overall coin circulation, it’s essential to note that silver and copper coins have historically been extensively circulated. Thus, we couldn’t entirely halt their circulation without disrupting government operations.
Furthermore, our primary focus was on halting the circulation of gold coins throughout the empire, leaving limited resources to address the circulation of silver and copper currencies."
Vijay nodded in satisfaction at the explanation and swiftly responded, "Understood. Maintain the suspension of silver coin production and escalate the production of copper coins. Ensure that enough copper coins are minted to devalue them below the new 1 Varaha coin. Let this serve as a temporary solution until the military economy transitions.
Once that occurs, increase the issuance of paper currency for the same gram of gold and devalue this currency accordingly, aligning with the empire’s enhanced production capacities."
Both Jagannath Mohan and Rajesh nodded their heads, agreeing to the suggestion.
"Your Majesty, in that case, should the bank be opened?"
"Yes, proceed with that plan," Vijay agreed decisively. "Additionally, open the Raya Bank and restrict its operations exclusively to industrial enterprises within the nation. Utilize the existing paper currency within the empire, distributing it evenly among various enterprises, thereby bolstering the economy’s breadth and depth."
After ending the meeting, the changes in the empire intensified. The Bank of Bharat, which had been kept under wraps in the public eye, was suddenly opened in the capital city of the empire. Simultaneously, the Raya Bank also opened, but due to being in a military economy system, its functions were held back by government control.
All the supporting factories and military enterprises in the empire started dealing with the new paper Varaha currency. A few discontent riots broke out in the empire, but they were immediately put down by the police, who were in the process of upgrading their combat effectiveness.
In the special economic zone of Thiruvananthapuram, foreign exchange channels expanded abruptly. Foreign businessmen received notice that their Gold Varaha coins would no longer serve as the empire’s currency; instead, they’d be valued according to the current market price of gold.
Simultaneously, paper currency could be exchanged for any copper, silver, or gold coins from other countries based on the Dakshin Bharatiya Empire’s market rates.
Merchants were initially taken aback by this shift, realizing their coins held no inherent currency value. However, their anxiety subsided upon the understanding that the currency retained its value equivalent to its weight in grams at the prevailing market rate. This realization assuaged their concerns, preventing any potential escalation to war.
Moreover, they were relatively accepting of the decision, recognizing that gold held greater value in the Bharatiya Empire compared to Europe. Consequently, even if the value of gold depreciated slightly after exchanging their coins, it wasn’t a significant loss, given the valuable goods they received in return.
The primary hurdle for foreign merchants lay in exchanging their own metal coins for the paper currency of the Bhartiya Empire. During this period, they relied heavily on the Bhartar system, where direct exchanges of gold and silver for necessary goods prevailed.
However, a Venetian merchant, reluctantly accepting the paper currency after acquiring fewer goods than the gold he exchanged, was astounded by its exceptional quality and intricate design.
Upon thorough examination, he became convinced that such detailed notes were beyond replication, even in Europe. The seamless integration of the thin metal strip with the paper baffled him; it appeared as if the two materials were born together rather than being stitched. This enigma left the Venetian merchant utterly mesmerized.
Confident in its authenticity, the Venetian merchant utilized the paper currency on his next visit to the country, securing a 3% discount on his purchases. Encouraged by his success, other European merchants gradually began transitioning from smaller to larger denominations of paper money. These developments unfolded over the ensuing months, all while the barter system remained in effect.
When requested to exchange the old Gold Varaha coin with the foreign exchange department, most merchants opted to hold onto the gold Varaha currency for longer, anticipating its appreciation in value due to being out of production, as they were informed.
Unfortunately, Vijay did not want people to hold onto this currency and make it appreciate too much in value before the transition was complete. To counter this, he devised a solution where the previous Varaha coins would be rebranded from a currency to a piece of jewellery.
Consequently, all the jewellers in the empire could produce the coin if needed, given that it was made from gold regulated by the empire.
To ensure people were not taken advantage of, publicity was done within the empire to only buy the gold coin where weighing machines and testing rocks were available, and to notify the authorities when discovering a black jewellery shop, fetching them a handsome reward of 20 Varaha notes.
However, while this method effectively curbed the increasing value of the previous Varaha gold coin, a drawback was that individuals unwilling to use paper currency might resort to using this third-party currency agreed upon and regulaated by the empire.
But this is exactly what Vijay wanted. He did not want the Varaha currency to appreciate too much in value before the transition was totally completed. Since the third-party-produced Varaha coins were also made of gold, the value was preserved, and there was also a way for unwilling people to participate in the economy without bringing it to a complete standstill.
In the current military economy situation, it was impossible to do business without passing the money through the government. Thus, the gold in the hands of these rich people would eventually end up in the hands of the empire, providing more raw material for the production of paper currency.
This approach also prevented foreign merchants from making a killing profit by hoarding the gold coins.
Overall, Transitioning from a metal-based currency to a paper-based one would typically pose significant challenges in a conventional economic model. However, in the military economic model, the process occurred relatively smoothly, all things considered. Within a few weeks, the printed money of 176,470,130 Varaha was in circulation.
Moreover, with the gold acquired from taking over Gujarat, more currency could be printed, further expanding the size of the economy. This new currency would play a crucial role in the future opening up of the economy. It could be depreciated when necessary, making exports more competitive and reducing the cost of products immediately.
This would be particularly beneficial since the war would have increased production capacity within the empire. Ultimately, this would complete the full transition from a gold-minted currency to a gold-based one.
P.S. Both the chaps combined were only 1800 words in the draft, now they are 3300, Also if anyone finds any mistake in the numbers don’t mind mentioning it but I will be scared reading such comments.