Reserve Currency
March 6, 1779. The Pope had sent a letter. Amid all the diplomatic flourishes, there was only one conclusion: "Cough up some offering money."
Well, France was the only country in Europe actually functioning these days. The neighbors on the Italian Peninsula were gasping under pirate raids, the principalities of the Holy Roman Empire were busy fighting among themselves, and Britain was tormenting those beleaguered Italians. I hesitated over my reply.
"Has the Pope no conscience?"
He was demanding a cool 100 million francs in cash. We'd only just started minting the new francs, and there probably weren't even that many circulating in all of France yet. Hand them over just like that? If Napoleon had been around, he'd have given them a proper schooling by now. But Napoleon was still a snot-nosed kid, so I held back.
"Your Majesty, the true intent of this letter isn't the request for funds. The Pope has been effectively sidelined across Europe since the Peace of Westphalia."
"Then what the hell is this letter about?"
"It's probably just a shot in the dark. They started high, figuring you'd haggle the amount down—a classic negotiation tactic."
Trump-style bargaining.
"The markets are overflowing with grain, right? Buy it up and ship it to the Papal States as our offering. Harvest season's coming soon, so let's drive up grain prices a bit to boost the peasants' disposable income. Tell the Vatican we can't spare cash, only goods in kind."
"I'll see to it."
"The Mediterranean's crawling with pirates, so send it overland."
"That would mean through Savoy... er."
What was that? I'd never seen Terray slip up like that before. It wasn't nothing—there had to be something to it.
"Listen carefully. Savoy? What do you mean by that?"
Terray paused for thought, then spoke plainly. "Between France and the Papal States lie various minor states like the Kingdom of Sardinia and the Republic of Genoa."
"Minor states can't block France. Tell them to open the roads in the name of supplying aid to the Pope."
"Understood."
Damn. That nagging feeling I'd overlooked something crucial.
*
The French offering—goods valued at 100 million francs by the Treasury—arrived in the Papal States and was immediately released into the Roman markets. But the locals' reaction was lukewarm.
"So, how many sols is this?"
"Two sols, but... sigh. Just give me half a handful of salt."
It was because they had no money. Rome didn't need goods in the first place. There was no famine, no livestock dying from plague, and not much demand for French manufactured wares. What the Roman citizens needed was one thing: francs.
"Wait, I do have a ducat..."
Of course, other currencies could be used. "No change."
But Europe was gripped by massive deflation sparked by bill frauds, rendering high-denomination gold and silver coins useless as money. A ducat equaled 12 francs and 5 sols, but for a 2-sol item, you'd have to give back 12 francs and 3 sols in change. Such absurd high-value coins had low utility, so unless you were a big merchant dealing in bulk trade, no one took them. And those merchants sold in warehouse quantities, making old gold and silver little more than shiny trash to civilians.
"Tch, here's your salt."
"Why only half a handful?"
"You asked for half a handful, didn't you?"
"Does this look like half a handful to you?"
Such petty squabbles cropped up among civilians, but they were minor compared to the army's woes.
"Ugh. Getting paid in salt. This isn't ancient Rome."
The Swiss mercenaries in the Papal army grumbled as they portioned out their salt wages. The other mercenaries said nothing but smirked in sympathy. Some Swiss sold their salt to buy francs—which fetched a premium since francs were scarcer than salt. A franc in the Papal States cost a bit more than a franc's worth of salt.
It wasn't just the Papal States. Across Europe, people paid premiums to stockpile francs and build wealth. Private exchange markets sprang up for francs. But the commoners who shelled out extra for francs didn't spend them at market.
With no circulating currency, goods stagnated, and the masses bartered. Logistics costs skyrocketed. Even industrialized cities regressed to agrarian economies—especially mining towns. Miners and laborers, unable to afford food, started tilling personal plots for self-sufficiency. Crop farming cut ore extraction and steel output drastically.
As quality of life plummeted visibly, popular rage swelled uncontrollably. Intellectuals scrambled to pinpoint the recession's cause—not just for worldly gain or fame, but from a sense of professional duty.
Their deliberations didn't last long. They might not know the root cause, but the effects were plain as day. Papal markets had collapsed; Europe teetered on ruin.
France, however, was different. Though it too declared bankruptcy like the others, it recovered at a blistering pace unmatched by any rival. Economists dissected the reasons into three main factors.
First: currency devaluation. Other nations, bereft of traditional money, minted pure gold and silver coins to revive the old standards. France discarded the old livres, sols, and deniers entirely, mass-producing brass and iron coins instead. The outcome was clear. Countries clinging to archaic money couldn't produce enough to flood markets. Even when they did, elites and landlords hoarded it all. Gold and silver slept in vaults.
No matter how much they minted, cash briefly appeared in circulation before vanishing. No real exchange happened.
France diverged. It flooded markets with vast quantities of brass and iron coins, replacing gold and silver.
Here came the second factor: the "high civic virtue of the French." Normally, debased coins lose value against purer legacy money. But the French trusted the crown and used the devalued brass and iron as if they were old livres. Pro-French economists hailed it as "a populace worthy of their enlightened king." Cynics shrugged: "Drop the face value to 1/24th or 1/120th, and of course credit emerges."
Either way, the crux was that Frenchmen trusted the new franc.
Thus, the new franc entrenched itself as Europe's international hard currency. Britain's Adam Smith spotlighted France's policy in the second edition of The Wealth of Nations, citing it as an example of the "invisible hand." Smith noted that old coins like pure gold and silver had face values too high to reflect the full spectrum of labor value.
Indeed, as francs spread via trade, daily wages shifted—even in Britain. Some industries paid skilled workers a few extra sols weekly. Britain boosted steel output over 10% above pre-crisis levels through such incentives.
In short: competition bred competitiveness.
Truth be told, psychology drove much of it. A mere few sols more was still just 5%. Selective 5% raises couldn't alone yield 10% production gains. But the sol's value had shrunk to 1/120th. That meant even the same nominal sol represented more metal volume than before. Handing over dozens of plated iron coins felt like more money than one pure coin.
That feeling—the irrational, indefinable sensation—was the root of competitiveness.
Britain, sourcing francs piecemeal through trade (piracy, really), ignited this much labor zeal. Imagine the fervor among France's peasants and beggars receiving these coins firsthand. France was quietly infiltrating Europe.
Amsterdam's stock exchange mandated franc priority in securities trades. Spain dispatched shipwrights to France, taking francs as tech transfer fees. Austria proposed vigorous trade to reaffirm the Franco-Austrian marriage alliance. Prussia offered military advisors, but a junior diplomat shot it down. Even Ottoman bazaars circulated francs and sols—as art pieces, sometimes real money. They trickled to Qing China, and soon Joseon too.
The farther from Europe, the more francs lost monetary function, but propagation itself mattered. In Joseon, francs became exotic luxuries, not currency. Western enthusiasts collected them. Their final destination: the Myeongryebang.