Charters of Banking Reform (essay)
Title: Charters of Banking Reform
Author: Xorus Kul'shin
Citizens of Wehnimer's Landing:
While I am merely a wealthy patron of your township, as so many others, it is apparent many of you wish autonomy from imperial dominion. It strikes me you imagine yourselves at the mercy of much greater powers, suffering at the hands of predators, all the while subverted from within by the whims of chaotic agitators and rogue factions. Waging might upon might, some semblance of self-reliance, is understandable. Much has been spoken in this spirit --- of ballistas and armadas, chains and trades, brigands and brigades. Souring the milk with one hand, only to sweeten it with the other.
Unfortunately, this is something of an insurmountable paradox, as no such might or foreign grace is forthcoming. What weapons are we speaking of that would deter the imperial armies, much less Krolvin raiders, beasts of prey who live only for the slaughter? What strength of trade would dissuade the Empire from wishing to annex it, so that they might levy their own taxes on commerce passing through the port? Indeed. With greater command over resources and flows of port, and as more cost is passed onto imperial purchasers, the more appealing becomes your seizure.
And yet, you cannot very well fund your ambitions by taxing your townsfolk, or the merchant class which must rebuild themselves. If I might be so bold, my fellow countrymen, this is essentially backwards. What is called for now is burdening the hazard upon everyone else, leveraging chaos to your own advantage, so that you may emerge victorious in the war that was never fought. While the Vaalor have a fine military tradition, much admired in its own way, the state of Elven affairs is a testament to its irrelevance. War is policy by other means, and for Elves, policy fails at the point of violence.
I. The Virtues of Statecraft
Criminals suffer from poverty. When crimes are committed by the wealthy, they are branded instead as virtues of nobility. When one child is accidentally slain by a wild horse, the carriage driver is guilty of reckless endangerment. When the Lorminstran temple turns their home into the target of the Dark Alliance, many children are killed, yet no one would ever blame the priests. In much the same way, mass murder becomes war, and extortion is elevated to statecraft. The Elves mastered this art for tens of thousands of years. The intrigues of power politics are such that "war" never actually happens.
The pursuit of self-reliance in such vulgar terms --- iron upon steel, as it were --- is ultimately a gesture of futility. There is no such force of arms, labor, wealth or anything else. What you must do is make the tail wag the jarlik, rather than play at a game with foul rules. While there are certain measures that might be taken, rituals involving the dark arts, these are not worth elaborating upon. Few would see the appeal of the dark theocracy that once ruled here, inundating the lands with unspeakable horrors, and so standing amidst far greater powers inviolable. What I wish is far more ruthless.
Since the goddess of death has taken it upon herself to grant a special kind of favor for fortune hunters, an "adventurer" class has formed of virtual immortality with obscene wealth. These reckless souls survive many deaths, almost all living in the lawlessness of the northwest. Wealth is bound up in the acquisition of artifacts, but the coin merely changes hands while growing in its plundered totality. The First Elanith Bank by itself sits upon many billions of silvers, which sit idle, as evidenced by the utter lack of interest in its accounts. "Old money," if you will, is wiser. It would rather wield power with delayed gratification. If Wehnimer's Landing were to adopt Elven banking practices, with certain modifications, it would become formidable in spite of its lack of other immediate resources.
II. Charters of Banking
Some decades ago there were two banks in the Landing, the latter of which is now rubble in the old Banker's Square on the West Bank. The chief difference with the First Elanith Bank, which for years was operated by gnolls, was the charging of bank fees. There was an incident which ruined this less popular bank, and now we only have a poorly managed depository with two branches. Supposing it had even been a savings and loan, the town would by now look much different, with its opulent great houses and their endowments shadowing over hovels and shanty towns.
What I would propose is rebuilding a bank on the old foundations, but tasked with a fundamentally different kind of charter, issuing monetary authority to the local government. The wealth of nations is not commerce, but the leveraging of credit. The local branch would be forced to forfeit half its reserves to the state charter, which would guarantee the value of bank notes with its own powers of taxation. Most silvers stay within the walls of the bank regardless. The purpose of the national bank will be to make loans to the treasury, or other governments, and provide silver to banks in the event of inability to meet their balance of payments. Over a longer time scale these reserves should become a mixture of precious metals, so we are not at the mercy of dwarven supply gluts in any given streak of ore.
There are several other forms of banking institution that should be fashioned to augment our strategic position. The state of world affairs is such that the continent is dominated by racially homogeneous, or dominated, governments which for that reason alone cannot trust each other to hold wealth for coordinating international finance. Wehnimer's Landing is quite literally the only place that can serve this function, and can only do so as long as it is more or less autonomous from the Empire. It would be well-served to have a few other state institutions for this reason, including a clearinghouse for banking coordination, as well as an import and export bank for treating bills of exchange. There would also be value in a private banking sector that services dubious parties no one else will honor.
(1) The Treasury and the Exchequer
The Treasurer of Wehnimer's Landing, of course, would be chiefly concerned with financing public works. There would be a separate position for operating the national bank, which amongst other things will buy municipal bonds with its reserves. In this way the town will be able to borrow from itself, if need be, or sell such debts back to the public to manipulate the rates at which money is loaned. Regardless, these reserves will serve as collateral for borrowing funds from other countries and foreign investors, so that the Landing can rapidly develop itself without draining its own resources.
Without boring you all with minutiae of the fiduciary arts, the key is that profit is made by both borrowing and lending across varied lengths of time. While some of you may cringe at the idea of being beholden to others, an overlapping tapestry of owing to each other imposes risks against any instability of relationships. Moreover, there is such a thing as owing others so much, they cannot afford your failure. They are quite literally invested in you. Thus the value of being heavily indebted, even as you heavily lend to others. Such is the sorcery of money, the greatest of all illusions.
(2) The Clearinghouse
The situation of trade in its present state is that local promissory notes are regarded as foreign scrip in other domains. That merchants will not accept them is a testament to the ordeals of exchange and the backwards state of affairs. It is necessary to find money changers who will recognize the notes, who charge on the order of 5% from the face value to cover the risk and costs of transaction in balancing payments across large geographical distances. There are notable exceptions to this rule, such as the trade arrangement through Khazar's Hold, where both sides of the Dragonspine slash down to a 1% gratuity. The First Elanith Bank will not even accept bank notes from its own Icemule branch, but there is only a 0.5% exchange fee in contrast to the 5% rate for the Bank of Vornavis.
The Elven Nations have a unified banking system such that accounts are recognized across all city-states. Their bank branches balance their cash flows internally, undoubtedly at the end of the day using dreamstone amulets. There is no difficulty in this internally, but the same thing could never be done with foreign banks. Transporting reserves across borders is expensive and dangerous, whereas keeping reserves in other nations is essentially foolish. Wehnimer's Landing is quite different in this respect. It is not a source of political rivalry with anyone, and represents no single interest.
The Exchange Booth by the river should be acquired, with its money changers put on salary or commission. It will be converted into a clearinghouse that recognizes all foreign scrip, while only charging one or two percent on the transaction fees. This will lure merchants across the continent to perform large transactions here, with its solvency backed by our own reserves at a high interest rate. The money exchanges elsewhere will not be able to match it, and other banks will have to swallow the short-term loan rate to work our market. Inevitably these banks will have no choice but to expand their own reserve holdings in the Landing so they can balance their transactions without being gouged. Silvers will simply be moved between cages, which cannot be done in any other country.
This will immediately translate into a kind of political power which no one can afford to cross. The northern territories of the Empire would not only be robbing us, but also the southern baronies which will backlash. Only the Emperor could seize the assets of the Landing, and that would provoke war with the Elves if the holdings were great enough. They would have no choice but to purge the Krolvin from Glaoveln at their own expense. Thus, if one day this town were in some sense part of the Empire properly, it would still remain autonomous because its value would depend upon it.
(3) Depositor's Insurance
Without maintaining full reserves for private bank accounts, deposits will be guaranteed by the national bank in the form of notes. Silvers will be reserved for international payments, which is infinitely more important. The more wealth that is held within the Landing, whoever ostensibly owns it in a given cage, the less relevant the risk of bank runs. Moreover, First Elanith Bank can pull upon the reserves of its other branch, which is a backdoor source of liquidity even if there is no formal arrangement with the Halflings.
(4) Import and Export Bank
Beyond mere affairs of state, an import and export bank should be established at the wharf. Its purpose will be to act as the medium for bills of exchange, which are orders and promises of payment between tradesmen across long distances. These often take the form of: "in exchange for giving me 500 things now, when they are sold in the future payment will be made to whomever from wherever, who will then send a note back which accounts for payment locally." They are not bank notes, but instead promises for purchase, for which there is a dire lack of "liquidity" in general.
Once more this will be the medium of trade with not only merchants but other states, who will have to abide our clearinghouse to move their notes in our market. If the Elves were selling veniom in bulk to the Empire, for example, they would choose to do so through us as intermediary without physically bringing it. It will not be necessary to convince any foreign heads of state on this matter, their merchant class and ultimately their own financiers will abide it for their own profit. Dreamstone amulets will be used to balance payments across the continent with all member banks each day.
This trade bank would serve as vouchsafe for established merchants from across the world, who would not otherwise know they can make such trades safely with strangers, and become the foundation of a market trading on the future value of things. In itself this would draw every deep pocketed speculator in the world, and the exchange would take a percentage off every trade. These revenues will feed back into the national bank reserves. All together, Wehnimer's Landing would quickly transform into a financial powerhouse, able to finance whatever it wishes and hire whomever to do it.
(5) Private Banking
Most controversially, though not without merit, is the role of privacy in shadow banking. Specifically, there are all sorts of organizations which cannot secure their assets, or make use of legitimate resources. These would also be the forces most likely to be violent toward us without incentive for preserving peace. In much the same way as the Empire would be frustrated using its own factions, these orders would turn upon each other if any of them made untoward moves at our expense. While it is not necessary, and morally objectionable, the most vile forces would not harm their own self-interest.
I imagine a world where everyone else may be at war, and the northwest remains unscathed as all wish to receive more financial support than the others. Those who would seek to rule should be coming here asking for aid, rather than the other way around simply to restore a minimal standard of living. Power once held in this way will be very difficult to overcome.
The precise details of these institutions would undoubtedly be more fine-grained than this proposal. Nevertheless, this is the most effective way of mobilizing the greatest resource we possess, namely the extreme wealth of the fortune hunting class which trades within itself at ever higher prices. These transactions virtually always occur on paper, leaving no reason to not use the actual silver for the purposes of international banking. The more wealth that is wielded for the interests of our state, the more powerful we are over our own environs, and the greater the hazard for violating our sovereignty.
Whatever risks we take with such money become dispersed across the continent, which after all, would simply require some more imaginary numbers to make men once again kneel and beg as dogs. In the same spirit of genuflection, I suggest that we impose an inverted tithe on the church, reparations for the damages and loss of life caused by the two Griffin Sword Wars. We all know they can afford it.
By my hand,
Lord Xorus Kul'shin
23rd Charlatos, 5115 Modern Era