The profits contained within monetary hegemony were well known, yet only a handful of nations were qualified to compete for it. To serve as an international trade settlement currency, at minimum a nation had to meet the following basic conditions: The issuing country’s economy must be sufficiently large. The issuing country’s import and export trade must be substantial. The currency itself must have a stable exchange rate. The issuing country must have the ability to guarantee redemption of its currency. Ideally, the issuing country must also act as the world’s policeman. In modern times, the first to meet these conditions were the British, and so the pound became the earliest international currency. However, limited by the constraints of communication and the low degree of global economic integration, the pound’s promotion was far from smooth. In international settlements, most still preferred to use gold and silver. As international trade volumes steadily increased, relying solely on gold and silver became outdated. It was then that the pound took to the stage of history and became the first international currency. Unfortunately, by that time Britain’s position as the economic hegemon was no longer secure. During the process of establishing monetary supremacy, the pound faced successive challenges from the franc and the guilder. Once the opportunity was lost, it could not be regained. With the passage of time, Britain gradually lost its advantages in industry and economic scale, and its dream of monetary hegemony came to an end. Especially after the conclusion of the European War, when the Holy Roman Empire achieved reunification once again, the guilder’s dominant position on the European continent was firmly established, making it the most powerful contender for monetary supremacy. An advantage was still an advantage, but until the dust settled, no one could guarantee that unexpected events would not occur again. Franz remembered very clearly that across the ocean there was still the so-called “Chosen Nation,” quietly strengthening itself. The Americans had natural conditions far too favorable. They could be self-sufficient in almost every resource. Even if the land were divided into three parts, each part would still have the potential to become a great power. Whether it was the Union or the Confederacy, both had far greater developmental potential than Britain, France, or Spain. The Union in particular had potential that even surpassed Russia. The only weakness at present was population, both in quality and in numbers, and this was the key factor restricting their economic development. Franz had not been careless. He had planted a ticking time bomb in America before they had time to react. But whether it would ever go off, or when it would explode, remained a complete unknown. Franz did not want to pin his hopes on uncertainty. Instead of waiting for a challenger to rise, it was better to use his current advantages to secure the future in advance. Once monetary hegemony was established, it would not be easy to topple. Later generations would see America recklessly overextend itself and make other nations suffer bitterly, yet the dominance of the dollar still remained unshaken. The reason was simple. This was the siphon effect. Monetary hegemony drew in capital from every corner of the world. With money flowing in, technological progress accelerated, and military dominance became even more secure. The first step taken quickly ensured that every step afterward was quicker as well. Once a hegemon’s position was established, it resembled the market leader of the internet age, pressing latecomers so firmly beneath its weight that they could hardly breathe. If the guilder’s supremacy in global finance was secured, then in the end, the only power capable of destroying the Holy Roman Empire would be the Holy Roman Empire itself. Minister of Finance Reinhardt analyzed, “Your Majesty, if we want the guilder to become an international settlement currency, then our economic model must also change. The greatest problem the guilder faces in becoming an international settlement currency is outward flow. With international trade steadily expanding, simply issuing international loans can no longer meet demand. In the early years, to reduce the loss of capital, we adopted a balanced trade model. For the past forty years, we have run trade surpluses most of the time. This surplus was not without value. In fact, it was through these surpluses that we slowly built up our reserves and laid the foundation for our rise. But if we want to topple the pound and make the guilder the dominant currency in international settlements, then such a model is no longer suitable. When it comes to monetary exports, the British are the best example. The pound’s international spread relies heavily on Britain’s persistent trade deficits. If we want to shift toward a trade deficit model, we must make choices. Either reduce exports or increase imports. The Ministry of Finance believes that we can give up some unimportant low-tech industries to other countries, while focusing our strength on developing high-tech sectors.” The issue of guilder exports had already been debated many times within the Austrian government. To better promote the guilder, as early as twenty years ago, the Austrian government began to issue international loans across the world. If not for this need to export the guilder, no matter how strong the political reasons, clients as unreliable as the Russian government could never have borrowed so much money from the Empire. The problem was that money went out quickly but flowed back just as fast. As the world’s leading industrial power, every kind of manufactured good could be found within the Empire. Most debtors, upon receiving funds, barely had time to hold them before spending them back into the Empire’s markets. In this context, even when the Austrian government only aimed for balanced trade, the final result was still a trade surplus. The result of running trade surpluses was a massive influx of capital. While this fueled the Empire’s economic growth, it also hindered the development of international trade. Simply put, as gold and silver flowed outward in great quantities, trade partners grew poorer. With no money left, they could no longer buy more goods. Knowing the problem was one thing. Changing the economic model was another matter entirely. A single misstep could lead to catastrophic losses. At this point, Franz began to understand why future Americans would pursue deindustrialization. Industries that were labor-intensive, highly polluting, and low in technology were precisely the ones they abandoned. By the time enough industries had been abandoned, farsighted people suddenly realized the nation had become hollow. Yet by then it was already too late. Competitors had risen on the back of cheap labor, and restoring industrial strength could only be attempted by accelerating research into artificial intelligence, using robots to compete against low-cost human labor. What the final result would be, Franz did not know. All he could say was that, before his transmigration, artificial intelligence had not yet replaced human labor. “What industries is the Ministry of Finance preparing to abandon?” Abandoning some industries was inevitable. Franz was no idealist. How could one hope to enjoy the benefits of monetary hegemony while avoiding the aftereffects it brought? That was impossible. Exactly which industries to give up, however, remained a matter for study. Minister of Finance Reinhardt spoke, “The industries the Ministry plans to abandon are mainly concentrated in low-end manufacturing and the extraction of non-renewable resources. Specifically, they include rare resource mining, textiles, dyeing, and the production of low-end clothing and footwear… Considering the needs of domestic development and employment, shutting these industries down immediately is unrealistic. In the short term, our measures will focus on tightening approval for new mines and registrations of low-end industrial enterprises. At the same time, we will reduce import tariffs for products in these sectors. With time and market competition, these outdated industries will gradually be phased out. If everything goes according to plan, within five years we will enter the era of trade deficits.” Since the list did not include any core industries, Franz let out a quiet sigh of relief. At least the Ministry of Finance had proven competent. They understood what truly formed the foundation of the nation. If anyone within the government’s upper ranks had seriously proposed giving up core industries, Franz would have had to consider overturning the table altogether and adopting a different strategy in the struggle for monetary hegemony. After all, he had carefully selected this generation of leaders himself. If even they were so shortsighted, there would be no hope left for their successors. In later times, the Americans had pursued industrial hollowing only because they believed artificial intelligence was advancing rapidly, allowing them to one day reclaim those industries. They only dared to play such a dangerous game because they expected a technological breakthrough. When the breakthrough never came, they regretted it deeply. To attempt such a gamble in the nineteenth century would be madness. France in the original timeline had already offered a cautionary tale. They failed to seize monetary hegemony, and instead of remaining an industrial empire, they devolved into a nation of moneylenders. With that lesson before his eyes, Franz dared not treat the matter lightly. In the contest for monetary dominance, two paths lay before the Austrian government. The most profitable option was for the Empire itself to take the lead. But as a fallback, Franz could also push the Continental Alliance to the forefront and let it claim monetary supremacy. In some ways, the latter path had a higher chance of success. With the combined power of the Continental Alliance, not even Britain could stand in their way. In fact, even if the rest of the world joined forces, they still would not be able to match it. The only issue was that despite being the largest investor, the Holy Roman Empire would not see particularly high returns. At best, the profits it could secure would be only slightly higher than what it received now. After a moment of thought, Franz shook his head and said, “The risks of changing our economic model are too great. We are not like the British. We can learn from them, but there is no need to imitate them completely. To be cautious, in the short term what we can do is reduce mining. Mines already in operation can remain as they are, but new mines must undergo strict review. The government must clearly understand which resources must be developed, which can be reduced, and which can be left untouched for the time being. We cannot act blindly, lest we harm our domestic economic development. It would be best to introduce a natural resources law that legally prohibits the export of raw minerals. Coal and oil should also be placed under temporary resource control, with exports strictly reviewed. For low-end manufacturing, strict approvals will be enough. Reducing capital inflows will naturally limit them. Beyond that, it is better to leave things to the market. There is no need to deliberately lower tariffs, since being too obvious would only backfire. In the short term, the government’s focus can be on pollution control. Heavy industries in the empire’s core regions, particularly those located around lakes or at the headwaters of rivers, must either be relocated or shut down.” Full-scale pollution control was impossible. The technology was not advanced enough, and Austria’s coffers were far from deep enough to afford it. Still, Franz was confident in making certain adjustments. Relocating or closing some of the worst polluting industries was within reach. Since the empire had to gradually move into a trade deficit era to promote the guilder, this was the perfect opportunity to eliminate heavy polluters. Franz was willing to make sacrifices to push the guilder. Even the empire’s oil industry could be placed under resource controls if needed. Of course, this was a limitation of the era. International demand for oil was still modest, and any so-called “oil-guilder system” was far from reality. Besides, limiting oil exports had its advantages. While it seemed like a loss of revenue on the surface, in truth it would deal a blow to rivals. As a major oil exporter, once the Holy Roman Empire reduced exports, global oil prices would inevitably rise. This would slow down the adoption of internal combustion engines. And since this was the critical period of the Second Industrial Revolution, missing the moment would make catching up nearly impossible. A move that could achieve two goals at once… Franz did not mind sacrificing a bit of profit. After all, the oil was buried safely underground. It was not going anywhere.
*** https://postimg.cc/gallery/PwXsBkC (Maps of the current territories of the countries in this novel made by ScH)
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