Taichang Ming Dynasty

Chapter 736 Cash Reserve Ratio
“That’s how it’s been for the last two months,” Wang Ji nodded and said. “However, it wasn’t the first month when the official salaries were paid in silver notes. That time, I first went to the Taicang Treasury to withdraw cash, then took it to the Inner Transport Treasury to exchange it for silver notes, and finally used the silver notes to pay the officials’ salaries.”

"Why go through all this trouble?" Wang Yingjiao suddenly felt that something seemed amiss.

“Because the palace salaries were paid monthly, before the policy of issuing official salaries in silver notes was implemented, the Imperial Treasury had already transported the monthly salary to the Taicang Treasury. Since the policy was changed to issuing silver notes temporarily, the money naturally had to be returned first,” Wang Ji explained. “Every single transaction was recorded.”

“Hmm,” Wang Yingjiao paused, “Wait! This doesn’t make sense. Weili, didn’t you say at the beginning that the unpaid salaries, unpaid wages, and the recent wages and rice purchase funds were all paid from those embezzled funds? Why is the palace still paying salaries?”

"Because the Eastern Depot was responsible for confiscating the property, and the Inner Transport Treasury received the confiscated funds. The Ministry of Revenue never handled any confiscated funds from the beginning. In other words, the funds from these confiscations, including the property of the Li, Chen, and Guo families currently being investigated, all went into the Inner Transport Treasury, not the Ministry of Revenue's treasury for confiscated property. It was considered internal funds. I said that earlier because when we made the fiscal budget at the beginning of the year, we designated the use of all the confiscated funds."

“You just said that half of the recent salaries were paid by the palace, but that’s not quite right. If we’re going to be so precise, then from last September until now, all the salaries of officials in the capital have been paid by the palace. Hehe.” Wang Ji suddenly laughed. “Back then, the Eastern Depot’s Director Cui was publicly whipped for ‘embezzling the imperial treasury.’”

“You’re right,” Wang Yingjiao laughed. “The story of ‘The courtier being flogged at the Heavenly Palace Gate in the snow, while the people of the capital sing praises to the emperor’s sagacity,’ right?”

"What is this?" Wang Ji's lips curled up even wider.

"It's a rural novel adapted from that story, and it's already widely circulated, with many versions and all sorts of interpretations. When I passed through Shandong, I even heard that some third-rate opera troupes were starting to put on a performance based on it. It's just that the script is still wrapped in the skin of the Song Dynasty. It's similar to 'Jin Ping Mei'." Wang Yingjiao asked with a smile, "Aren't there similar novels in the capital?"

"Ha! What kind of blind bookseller would dare to publish such a thing right under the nose of the Eastern Depot?" Although he said this, Wang Ji's tone was more of a joke.

“That’s true.” Wang Yingjiao slowly wiped the smile that had just appeared on his face, looked at the silver note and asked Wang Ji, “So, Weili, what do you think of this matter?”

“Whether you call this a ‘silver note’ ​​or something else, it’s still a precious banknote.” Wang Ji picked up the exquisitely crafted silver note. “Only if a precious banknote can be cashed out can it be considered equivalent to silver. If it can’t be cashed out, it’s just a piece of waste paper. Considering that Liaodong has a deficit of four to five million taels of silver every year, this silver note will eventually become unredeemable.”

“Wei Li,” Wang Yingjiao paused for a moment before speaking, extending his hand. “I think you’re oversimplifying this matter.”

"Oh?" Wang Ji understood and handed the silver note to Wang Yingjiao. "What insightful opinion does Your Excellency have?"

“Hasn’t Weili considered not exchanging the banknotes for cash, but using them directly in the market? Like,” Wang Yingjiao took the banknotes and placed them on the coffee table. Then he took out a ten-tael banknote from his pocket. “This one is the same.”

“Xuanchangji?” Wang Ji looked at the inscription on the silver note.

Wang Yingjiao placed the Xuan Chang Ji silver note next to the "Da Ming Ri Yue Bank Universal Silver Note" and continued, "Xuan Chang Ji is an old bank in Zhejiang and Zhili. You can find their branches in most of the larger towns along the Grand Canal. You can cash it in the store. But I don't have to cash it in. I can just take this silver note and go to the merchants that accept it to exchange it for what I want."

“You yourself said that you can only exchange this banknote for what you want,” Wang Ji said. “You won’t be able to spend it at a breakfast shop on the street.”

“Sigh. The breakfast stall isn’t selling because it can’t break even. Why don’t you contract their breakfast business for two years at once and see if you can sell it?” Wang Yingjiao said.

“Hey,” Wang Ji said with a smile, “I’m not talking about breakfast, I’m talking about whether or not they accept it. This bank note,” Wang Ji pointed to the Ming Dynasty bank note, “is only accepted by the Sun and Moon Bank right now.”

“Not recognizing it now doesn’t mean it won’t be recognized in the future,” Wang Yingjiao said. “As long as banks continue to honor them, and local governments are willing to accept these banknotes when collecting taxes, it won’t be long before they gain nationwide recognition and become universal currency. Once a situation of universal recognition is formed, it is money in itself, even if it is not honored. In this way, a large surplus will be created in the treasury.”

“I understand what you mean.” Wang Ji looked at the Xuan Chang Ji banknote. “It’s like I’m the owner of Xuan Chang Ji now. Everyone recognizes my banknotes, even the breakfast vendors. If I’m short of money and want to buy something, like breakfast, I can just print a banknote out of thin air and use it. Is that what you mean?” If Wang Ji couldn’t even think of this, he wouldn’t have said that replacing silver with paper money was “renewing fiscal revenue.”

"More or less." Wang Yingjiao nodded, then shook his head. "But there's still one thing."

"What else?"

“Wei Li,” Wang Yingjiao said, picking up Zhang Xuanchang’s silver notes, “do you know how these banks make their money?”

"Don't both safekeeping and cashing out in different locations incur fees?" Wang Ji said.

“What’s a little fee?” Wang Yingjiao shook his head mysteriously, but didn’t keep them in suspense. “The biggest source of income for these money shops and banks is interest.”

"So, that's the kind of usury where nine outs and thirteen returns are made?"

“That’s right.” Wang Yingjiao nodded.

“Sun and Moon Bank does indeed offer mortgage loans. But,” Wang Ji paused, then chuckled, “'How much money can a bank make?' You said that yourself, didn’t you?”

“You still don’t understand what I mean,” Wang Yingjiao sighed softly. “For our Great Ming Dynasty, the money exchange business certainly doesn’t make much money. But do you know where the principal for these money exchanges to lend money at exorbitant interest rates comes from?”

Wang Ji understood somewhat, but still followed up by asking, "Where did it come from?"

“It’s that money that hasn’t been cashed out.” Wang Yingjiao slapped the Xuan Changji banknote next to the Riyue Bank banknote. “As long as it’s not cashed out, the silver remains in the bank. And the bank will use this money to lend out high-interest loans. For the imperial court, as long as someone doesn’t cash out, what the court issues is just a piece of paper, and the silver remains in the treasury. The national treasury, or rather the imperial treasury, will thus increase its silver reserves in a disguised way.”

"Isn't this still what I said earlier, 'a banknote that can't be cashed is just a piece of waste paper'?" Wang Ji laughed. "It's not that it can't be cashed, but that people don't actively cash it," Wang Yingjiao pondered for a moment. "Let me put it this way. Once a banknote can't be cashed, then it will immediately become a useless piece of waste paper, just as you said. But if banknotes can always be cashed, and the holders believe that they can definitely cash it as long as they take it to the bank, then no matter how much cash the bank has, it can continuously print banknotes equivalent to cash!"

"You mean, even if there's only one hundred taels of silver in the treasury, you can still issue silver notes worth one thousand or even two thousand taels?" Wang Ji's smile gradually turned into thoughtful contemplation. "That's equivalent to using the original silver reserves ten or twenty times?"

"That's right! That's it."

“But if people take out all the thousand taels of silver notes to cash, but there are only one hundred taels in the treasury, they still can’t cash them out in the end,” Wang Ji asked, building on the previous example.

“No. As long as everyone believes that the banknotes can be cashed and that they can exchange them for goods from others, they won’t rush to the bank to cash them as soon as they get them! After all, if you take the banknotes to the bank to cash them,” Wang Yingjiao said, pointing to the five-cent cashing fee clearly written on the back of the Xuan Chang Ji banknote, “you also have to pay a fee. Five cents for every tael, so after cashing out ten taels of silver, you’ll only have nine taels and five mace left.”

“But what if there’s a run on the bank?” Wang Ji picked up the Sun and Moon Silver Notes and said, “There was a run on the bank before. As far as I know, the silver note salary system was in effect for three months, and very few people kept the silver notes instead of exchanging them for cash.”

“That’s because the banknotes are newly issued, and everyone is uncertain about their future. As you just said, only the Sun Moon Bank recognizes these banknotes right now. Since the banknotes can’t be exchanged for anything, people will naturally rush to cash them. But once the situation stabilizes, the banknotes will be able to be exchanged for tangible goods. People won’t rush to cash them like before,” Wang Yingjiao said. “You just said that the banks, or rather, the banks, have completely opened up cash-out services, and there hasn’t even been a situation where the counters were empty and cash-out was temporarily suspended. This is building people’s confidence in banks and banknotes.”

"Hmm," Wang Ji nodded, but then said, "But in the end, there are only a hundred taels of silver in the treasury. Even if we don't exchange all one thousand taels, but only half or twenty percent, the treasury still can't be opened up."

"Tsk! Oh dear. That's because your own example is too exaggerated." Wang Yingjiao chuckled. "Why should one hundred taels of silver correspond to the issuance of one thousand or even two thousand taels of silver notes? If you exercise a little restraint and only double or triple the principal, there won't be any problem at all."

“The annual tax and surcharges allocated to Liaodong total 4.9 million taels, and the deficit is roughly the same amount.” Wang Ji pointed to the ledger recording the deficit and said, “If we rely solely on these underhanded methods of ‘making soldiers out of beans,’ it probably won’t be long before the situation becomes one hundred taels of silver versus one thousand silver notes. At that point, these new silver notes will follow in the footsteps of the old paper money.”

"A few years? It shouldn't take that long, right?" Wang Yingjiao said. "Since Xiong Feibai took office, hasn't there been a constant stream of good news from Liaodong?"

More than increasing national treasury revenue, Wang Yingjiao certainly hoped the Liaodong conflict could be resolved as soon as possible. Ultimately, this huge fiscal deficit was caused by the 200,000 troops deployed to Liaodong and Korea. Once the fighting ceased and the troops withdrew, all the trouble would be over.

"Though we've won some battles, we're still struggling to achieve victory," Wang Ji sighed. "Our Commander Xiong has been in Liaodong for two whole years. He has indeed won a few battles. But all of these victories were fought defensively around our own cities. To this day, we haven't been able to recapture any of the three major besieged cities of Kaiyuan, Tieling, and Fushun!" Wang Ji clapped his hands in worry. "And let alone any talk of advancing to destroy their strongholds."

"Didn't Xiong Feibai's memorial mention when the campaign would begin?" Wang Yingjiao asked.

“No.” Wang Ji pouted and shook his head. “Our Commander Xiong’s analysis of the enemy’s situation is: ‘Although the enemy’s troops have suffered setbacks, their edge is still sharp. If we rashly advance to suppress them, we may repeat the same mistakes.’”

"What did the Ministry of War say?" Wang Yingjiao asked, his white eyebrows furrowed.

Wang Ji shook his head.

"The Ministry of War has not said anything?" Wang Yingjiao asked in surprise.

“It’s not without reason,” Wang Ji said, picking up his teacup and taking a sip of the tea, which had grown slightly bitter as it cooled. “It’s that the Emperor wrote a comment in vermilion ink on this memorial.”

"What imperial edict?" Wang Yingjiao asked hurriedly.

"No rush, let's proceed steadily."

"what?"

"The imperial edict contains only these six characters," Wang Ji said with a half-smile.

"This..." Wang Yingjiao immediately felt the same way as Cui Jingrong, who was far away in the Ministry of War. He was stunned for a long time before managing to utter, "You really are very composed, Your Majesty."

"More than just patient." Wang Ji suddenly stood up, walked to a small shelf that hadn't been mentioned before, stood on tiptoe, and took down a scroll. Then he walked back to Wang Yingjiao's side. "Take a look at this."

"what is this?"

“Last year’s imperial edict.”

"An imperial edict?" Wang Yingjiao stood up abruptly. He took the scroll with both hands, slowly unfurled it, and read—

Imperial edict to the Six Ministries, Six Offices, and the Censorate:
Our ancestors established official positions and assigned duties to ensure seamless communication between superiors and subordinates, and between internal and external affairs, creating a strict and disciplined system. Therefore, the responsibility for defending the frontiers was entrusted to those in charge of specific campaigns. Discussions in the court must be based on verifiable facts; how could mere conjecture and light-hearted criticism be tolerated?
In recent years, differing opinions have arisen, with various voices arguing that rigid rules hinder progress in times of crisis, empty rhetoric and exaggeration suppress strategic plans, lower-ranking officials' impetuousness and competition over the generals' abilities, and the unfounded accusations from the central government and provincial authorities shaking the resolve of border commanders. This has resulted in ineffective strategic planning, frequent missteps, growing suspicion and fear among soldiers, and ultimately jeopardizing future achievements. Following the recent defeat in Liaodong, with the wounds still fresh and the enemy's power growing, it is precisely the time to consolidate our foundations and await the opportune moment. Instead, slander and attacks abound, with some even attempting to substitute empty rhetoric for practical military calculations—is this not absurd?

Xiong Tingbi was entrusted with a critical mission during a time of crisis. He worked diligently to restore order from the ruins, fortifying the defenses and digging deep trenches, employing a mature and prudent approach. He cared for the soldiers and strengthened the defenses, effectively rebuilding the foundation of Liaodong. Yet, a chorus of voices criticized his cowardice, unaware of the perils of war and the need for careful consideration before action. If he were to pursue empty fame at the expense of real achievements, or indulge in empty rhetoric at the expense of sound strategy, who would dare to take on the responsibility of governing the frontier? Who would be able to save the nation?
From this day forward, anyone who makes irresponsible remarks about military secrets, slanders the military strategy, or disrupts the overall strategy with idle talk will be punished according to the law for obstructing military operations and misleading the government, and will not be spared. Everyone should diligently perform their duties, work together to overcome the difficulties of the time, and refrain from creating disturbances that would undermine the law.

Respectfully, this is the imperial edict.

(End of this chapter)