He changed Tiwat

"Because 'golden shrimp balls' don't grow out of the plate!"

Shen He had a look on his face that said, "How come you don't even know this?"

"Just like how Qingxin and Liuli Bag need to grow from seeds into flowers, and how immortal arts and martial arts need to be cultivated from childhood, the ingredients for cooking also need to be prepared in advance. When the chef buys the ingredients, the prices haven't dropped. He pays for the cost of cooking in advance, so his costs haven't decreased."

Han Fulai gave a thumbs up: "As expected of my Ah He, so smart!"

"Mm." Shen He nodded reservedly.

Ke Qing covered her face.

"Why do I seem like I'm the dumber one...?"

Han Fulai pretended not to hear Ke Qing's rambling and made a summary.

"A decrease in money supply is the 'cause' of deflation, while a drop in prices is the 'phenomenon' caused by deflation. Merchants produce goods in order to achieve expected profits, so the costs are already incurred before production. Deflation will reduce merchants' profits, even to the point of losses. With reduced profits, merchants will reduce their willingness to produce, leading to a shrinking market."

"Now we understand that deflation usually represents a decline in consumer demand, insufficient market investment, and an economic recession. A lack of willingness among businesses to produce means they don't need to hire as many people to manufacture goods. To save costs, businesses begin to lay off employees, directly causing many people to lose their jobs. Therefore, deflation is a very bad phenomenon."

While deflation can also be caused by an oversupply of goods, this usually occurs when there is technological progress and a significant increase in production efficiency. Obviously, this does not apply to Liyue at present, so Han Fulai did not explain this situation to Shen He.

When Han Fulai traveled to Liyue, signs of deflation had already begun to emerge, with rising unemployment. The blockade of the Thousand Rock Abyss and the shutdown of the Blackrock Depths further exacerbated the unemployed population, creating many street urchins like Scarface Liu, whom Shen He had encountered. Keqing's call for young people to join the Thousand Rock Army for "citizen service" stems from this situation.

"The amount of currency in circulation in Liyue has always been directly controlled by the Emperor. Under the personal control of this 'God of Commerce,' Liyue's economy has been steadily growing until he began preparing for the 'cessation of the Golden House.'"

For 3,700 years, Liyue, under the protection of the Geo Archon, had never known what an "economic crisis" was. Even when market fluctuations occurred, they would quickly subside. Until a little over a year ago, the Geo Archon began to reduce the circulation of Mora for certain reasons.

"The Emperor may be due to old age and declining health, osteoporosis, and lumbar muscle strain... In short, he has reduced Mora production and is preparing for retirement. This situation is also reflected in Liyue's financial reports and people's livelihood. As the most successful banker on the Teyvat continent, Pantarone and his Northern Bank have noticed this situation. Of course, this may also be related to his informants within Liyue. In any case, he predicted that 'deflation' would inevitably occur."

"Having realized this, Pantarone prepared a weapon to reap the wealth of Liyue. His weapon is called 'debt'."

"'Debt claim'... refers to someone owing money to the Northern Bank, and they have the right to collect the debt?" Shen He recalled a term he had heard when he went on field missions with Yan Fei. As one of the top legal consultants in Liyue Harbor, Yan Fei had handled many debt disputes.

“That’s right. Even the elite forces of the Fatui are called ‘debt collectors,’ which is what we commonly call ‘debt collectors.’ If you don’t repay the debt to the Northern Bank, the consequences are severe.” Han Fulai recalled Clement, whom he had beaten up some time ago. In terms of combat strength alone, these elite Fatui members were even stronger than ordinary Eye of God holders.

Those who possess the Eye of God are extremely rare, making them highly valuable talents in any country on the continent of Teyvat. Even a singing and dancing idol or a little bartender, once they possess the Eye of God, will have a combat power higher than that of an ordinary soldier.

The fact that the Northern Bank could deploy such forces to collect debts shows both the close relationship between the Northern Bank and the Fatui, and also makes people fear the strength of the Fatui. Using such high-end forces to collect debts is like sending Keqing to be a beef offal chef at a roadside stall, which feels like using a sledgehammer to crack a nut.

"Ah He, do you remember when I asked Lord Keqing for money?" Han Fulai asked.

Shen He nodded.

"Generally speaking, people won't lend you money for free. Because money in banks and money shops will generate 'interest,' which is the so-called 'money makes money.' People will only lend you money if the return on their loan is higher than the interest on money in a bank."

"The current deposit interest rate at Liyue National Bank is around 3%, which means that if you deposit 10,000 Mora into the bank, it will become 10,300 Mora after one year. However, if you borrow money from Liyue National Bank, they will charge interest of 4% to 5% depending on the circumstances. That means if you borrow 10,000 Mora, you will have to repay 10,500 Mora after one year. This loan is called a 'loan'."

"Lady Keqing is kind-hearted, benevolent, and always ready to help those in distress. She is a woman of high moral character, so she didn't charge interest when she lent me the money. But other people aren't as kind as Lady Keqing; they always charge some interest when they lend me money."

"...So you're just lending it to me but not accepting it," Ke Qing muttered in a voice only she could hear.

Han Fulai continued explaining: "In addition, there is a risk of being renege on your debts when lending money to others. For example, I borrowed ten million Mora from Lady Keqing and agreed to repay it in a year, but I was just lying to her. As soon as I got the money, I ran to Zhidong Kingdom. Lady Keqing couldn't bring the Thousand Rock Army to Zhidong to arrest me, and I swindled her money for nothing."

"To prevent this situation, banks need to assess the borrower's repayment ability before issuing a loan, and also require the borrower to have sufficient assets as collateral. For example, if I ask a bank for a loan of ten million Mora, the bank will require me to provide a house in Liyue Harbor as collateral and sign a contract as a legal basis."

“Since the value of the house is greater than the ten million mora I borrowed, it would be a loss for me to run away. Moreover, the bank can legally take over my mortgaged house for auction, which would not only recover the loan but also generate more income.”

"Hmm..." Shen He stroked his chin, glanced at Ke Qing, "Ah Qing was willing to lend you a lot of Mora just now, without asking for collateral, without asking you to sign a contract, and without even asking for interest, so she..."

"Because I... am kind-hearted!" Ke Qing's tone sounded slightly guilty.

“Oh…” Shen He raised an eyebrow.

"Ahem." Han Fulai sensed the slightly awkward atmosphere and coughed lightly. "Lady Keqing means well, but others may not be so kind—for example, the Northern Bank."

"A few years ago, the Northern Bank lowered its lending rates to open up the Liyue market, which we can tentatively consider a commercial act. But a little over a year ago, the Northern Bank began implementing a new lending strategy in Liyue, offering interest-free loans to the people of Liyue. As we said before, whether it's a bank or an individual, lending is about earning interest, so what is the Northern Bank after if they don't want interest?"

Shen He recalled Han Fulai's earlier mention of "debt" and understood his meaning: "They want collateral."

“That’s right.” Han Fulai nodded with satisfaction. “Northern Bank doesn’t lend for interest, because what they’re after is the principal.”

"...So it's about the 'principal'?" Shen He's words were somehow directed at Ke Qing.

At this point, Keqing learned to pretend to look around at the scenery.

Unaware of anything amiss, Han Fulai continued his Teyvat economics lecture: "As we've said before, deflation will cause a situation where 'money is expensive and goods are cheap,' and almost everyone's assets will begin to depreciate. For example, a house that we bought for 50 million moras might only be worth 30 million moras under deflation. But in this situation, there is one type of person whose assets will appreciate."

“There’s a famous saying in my hometown: ‘Assets are virtual, debts are real.’ Even if a debtor’s assets decrease, the debts they owe are written in black and white in the contract, and they still have to pay back the exact amount owed.”

“I understand. During deflation, the currency appreciates, and debt becomes more valuable.” Shen He fully understood the Northern Bank’s strategy.

“That’s right. In this situation, if you owe the Northern Bank 10,000 Moira, you might have to pay back 20,000 Moira or even more. And because of the economic recession, everyone is struggling to make money and may not be able to pay back the money at all. The Northern Bank can then accept the borrower’s collateral according to the contract.”

"When Liyue merchants borrow money from the Northern Bank, they often use their shops as collateral. So when Liyue is in a period of deflation, the Northern Bank can take the opportunity to accept a large number of shops! Moreover, since the Northern Bank offers interest-free loans, many merchants borrow from them to avoid paying interest, and they hold a large amount of debt claims on Liyue's industries. At that time, the Northern Bank will have the most property rights in Liyue."

"No wonder Ah Qing said you were doing a good deed, because Brother Han, you used Liyue coins to save the Liyue merchants' businesses, right?" Shen He smiled.

“That’s right.” Han Fulai also smiled. “The ‘Liyue Coin-Mora’ system that I established was to disrupt the Northern Bank’s plans.”

"How exactly did they do that?" Shen He asked curiously.

"If we can't pay back our debts, we usually have two methods. One of them is to default on the debt," Han Fulai said with a smile. "If our Thousand Rock Army is strong enough to defeat the Fools, we'll just tear up the IOU and let them come and take it if they dare."

“Good idea.” Shen He agreed very seriously.

"Ahem." Ke Qing glanced at Han Fulai, meaning not to lead Shen He astray.

Han Fulai changed the subject: "However, Liyue is known as the 'Nation of Contracts,' a nation built on commerce, and its reputation is paramount. A reputation for defaulting on debts would damage the nation's image and is not the best policy. Furthermore, we cannot expose the fact that 'Golden House' has ceased production. Therefore, in this situation, there is a second option: robbing Peter to pay Paul, borrowing new money to repay old debts."

“I remember during the Lantern Festival, Lady Keqing and Lady Ningguang discussed how to protect Liyue’s important assets to the greatest extent possible. Your solution at the time was for the Seven Stars to provide loans to merchants who owed money to the Northern Kingdom Bank to help them through the crisis. But even so, a lot of Mora would still be lost.”

Ke Qing nodded heavily.

"But I used a new method. The third method is called 'debt dilution.' This method not only pays off debts but also makes money!"

Han Fulai picked up another Liyue Coin.

“I used Liyue currency to turn deflation into ‘inflation’.”

"Pantarone exploits the people of Liyue with debt, making money off the poor—that's pathetic. I'm different. I make money off whoever has money! Pantalonee is known as 'the rich,' and I make money off the rich!"

Chapter 112 Teyvat Economics, Han Fulai's Strategy (Part 1) [4k]

“‘Debt dilution’ and ‘inflation’?” Shen He encountered two new terms.

Han Fulai smiled and said, "As the name suggests, 'debt dilution' means reducing debt. Inflation is the opposite of deflation; it is a situation where 'money is cheap and goods are expensive.' Specifically, it means that there is too much currency circulating in the market, making the mora worthless, while the prices of goods rise sharply."

"Oh, so you mean there can't be too much or too little currency, just like the cultivation of immortal power needs to be matched with the capacity of the meridians in the body. Too little will weaken it, and too much will cause it to go into qi deviation?" Shen He asked.

"Yes." Han Fulai nodded.

Shen He truly deserves to be called a cultivation genius. Although she doesn't understand human society, she understands cultivation very well.

“But if ‘going into a state of demonic possession’ is a bad thing, then ‘inflation’ must also be a bad thing, right?” Shen He asked again.

“It’s a bad thing,” Han Fulai replied.

“Oh, so that’s why A-Qing said you did something bad.” Shen He said thoughtfully, “But you did it to protect the industries of Liyue Harbor, right?”

"Hmm, Ahe, you really understand me!" Han Fulai felt an urge to hug Shen He and kiss him, but he had to restrain himself in front of Ke Qing.

"Because you went mad while protecting me back then." Shen He's expression was full of self-righteousness; this kind of wholehearted trust was nothing more than a matter of course to her.

"Tsk." For some reason, Ke Qing felt a sense of frustration.

Han Fulai continued, "However, the bad thing is based on the premise that we have not controlled inflation. If inflation is not malignant but mild, then it is actually a good thing. With more money in circulation, people will increase their economic activities in order to make money and will be more willing to trade and invest. But if there is too much excess, then it is a bad thing. Finding the right balance is the key."

"First, let's explain how inflation dilutes debt." Han Fulai smiled. "The principle is very simple. Northern Bank holds debt. If it lends out interest-free loans for 10,000 morra, when you repay the loan, due to inflation, the money is not worth as much as before. The 10,000 morra you repay may actually only be worth 5,000 morra in the past—that's how debt is diluted."

"The higher the inflation, the greater the debt dilution. That's what they call 'the one who owes money is the boss.' This is the repayment method I've devised for Liyue—you, the Northern Bank, lend real money, and I, the Liyue merchants, repay you with cheap paper money," Han Fulai laughed.

"But if inflation leads to a significant devaluation of the currency, wouldn't that also harm Liyue's economy?" Shen He asked the key question.

“Yes. That’s why we need to control inflation.” Han Fulai smiled and cupped his hands in a gesture of respect to Keqing beside him. “Only our Lady Keqing can do this.”

"Hmm." Ke Qing proudly puffed out her chest.

"Now for the main event. Only after understanding the concepts I just mentioned can you comprehend our actions, Ah He. Let me explain in order."

Han Fulai raised the Liyue Coin in his hand and picked up a few Mora from the side with his other hand.

"The Northern Bank has made arrangements for interest-free loans in response to the impending 'deflation' in Liyue. My counterattack is to establish this 'Liyue currency - Mora' system. Simply put, I have replaced real precious metals with paper that can be depreciated at will."

"The preciousness of Mora is well-known, and its production method is highly confidential. Pantalone even risked his life to come to Liyue in order to uncover the secrets of the 'Golden House'... We believe that Pantalone himself was in Liyue on the eve of the Lantern Festival and personally planned the Explosives Department's operation. In short, Ah-Tsuru, just remember, Mora cannot be manufactured at will, nor can its value be increased or decreased at will. That's why I'm replacing Mora."

Shen He nodded.

"But Liyue coins are different. Their production cost is very low, and they can be mass-produced in a short period of time. The only thing that maintains their value is Liyue's credit. Their value can be manipulated as needed. Therefore, from the very beginning of establishing this system, my goal was to 'over-issue currency' and cause inflation!"

The people of Teyvat were encountering the concept of "fiat currency" for the first time, but for Han Fulai, a transmigrator from China, the United States' shady practices had been observed and learned over a decade ago. The United States not only defaults on debts, but also uses paper to repay them, and while doing so, they trick you into spending real money to exchange their paper for real money.

Using the advanced experience of the United States, the epitome of the capitalist system, to strike at the capitalists on the continent of Teyvat is like "a father beating his son"—fair, just, and very appropriate.

Once this system is rolled out across the entire Teyvat continent, it can also create the so-called "Liyue Coin Tide," controlling the flow of Liyue Coins through the Liyue National Bank's interest rate hikes or cuts, thus forming "Mora Hegemony" and helping Zhongli complete his plan. It can be said to be killing two birds with one stone.

“After the Lantern Festival, Pantarone obtained a lot of confidential information about Liyue. I believe he knew at that time that our ‘Golden House’ had actually ceased production. Therefore, he would definitely arrange some means to undermine the credibility of the Liyue Seven Stars. In response to his possible actions, I told two colossal lies to the entire Teyvat continent, and at the same time set up a ‘triple trap’ as a way to retaliate against him!”

Han Fulai's face broke into that smile again, the smile that said, "I'm stronger now." Keqing, unusually, didn't feel an itch to punch him; instead, she felt fortunate that Han Fulai was on Liyue's side.

"Two lies, three traps?" Shen He tilted his head.

"Well, because I held two 'press conferences'," Han Fulai laughed. "To be honest, it was my first time holding a press conference and lying in front of so many people, so I was a little nervous."

"...You were already doing it so easily the second time, without even blushing or skipping a beat, right? You big liar," Ke Qing muttered under her breath.

Han Fulai ignored Ke Qing's sarcastic remarks.

"At the first press conference, I announced the 'Liyue Coin - Mora' exchange system to the entire Teyvat continent. I publicly signed a contract that allowed people to exchange Liyue Coins for Mora at any time, officially linking Liyue Coins and Mora. I also used some methods to create the illusion that the 'Golden House' had not stopped production."

Keqing nodded. On that occasion, she was directly responsible for using a fake project to repair the "Golden House" and then transporting Mora out of the "Golden House" for the reporters throughout Teyvat to see.

“But Pantalone knows that ‘Golden House’ has stopped production. It is because he knows that he falls into my first trap—he will think that he has found our weakness. I held a press conference specifically to cover up the fact that ‘Golden House’ has stopped production, which will make him think that this matter is very important to us. He will definitely think that my intention is to make people accept the illusion that ‘Golden House’ has not stopped production.”

"So he will overlook that I actually decoupled the Mora from the concept of 'money'. I was actually getting people to accept one thing—'money doesn't have to be Mora'! That was the first trap I set for him, the first 'feint'."

Even though Keqing had already heard Han Fulai and Gan Yu explain the ins and outs of this matter at the Moonlit Pavilion, hearing it again still made her break out in a cold sweat over Han Fulai's audacious idea. At that time, the credibility of Liyue Coins was quite fragile, and the people of Teyvat had been using Mora for over three thousand years, so their acceptance of Liyue Coins was not very high. Just daring to think and do such a thing was already quite reckless.

—And Ningguang actually supported Han Fulai without hesitation at that time. Keqing even felt that Ningguang might have thought of the same thing long ago.

"I suspect that Pantarone will choose to launch some contingency plans to undermine the credibility of Liyue Coins. The most direct way, of course, is to use the fact that 'Golden House' has stopped production to cause a bank run."

“What is a ‘bank run’?” Shen He asked.

"A bank run" refers to a large number of people using Liyue Coins to exchange for Mora at banks in a short period of time. Once the Liyue National Bank reveals that it lacks Mora and cannot fulfill its exchange obligations, the credit of Liyue Coins will be ruined. Mora in banks is not a one-way street; banks use Mora for lending and other investment projects. If the Mora in the treasury cannot meet people's exchange demands, the bank's reputation will be devastated, which means that the bank has violated its contract that allows it to exchange Mora at any time."

Han Fulai managed to weather the first wave of the bank run with a performance at a press conference. Although the situation was somewhat dangerous, Han Fulai was prepared and managed to escape unscathed.

"However, what I didn't expect was that Pantarone... actually started counterfeiting Mora so early on. His choice was to directly attack the credibility of the Seven Star Government with counterfeit money. As everyone knows, the only mint on the Teyvat continent is the 'Golden House,' and people easily assume that the counterfeit money is also produced in the 'Golden House.'"

“I think when Pantarone came up with the strategy of counterfeiting, he didn’t know we were building the ‘Liyue Currency-Mora’ system. Without this system, his move would be extremely ruthless. In my hometown, this kind of thing would have a consequence called ‘bad money drives out good money’.”

In the 19th century, the French suffered greatly from this problem because their gold coins were of very high purity, consisting of 90% pure gold. The cunning Italians, however, used coins made of 80% pure gold, but weighed the same as the French coins, and claimed their coins were also made of pure gold. The Italians exchanged the French coins for their own and hid them, while Italian currency circulated in the market, effectively exchanging a small amount of gold for a large amount of gold.

After the French discovered this, they began to compete with the Italians in making coins of even lower gold content. No one added enough real gold to their coins, and the whole of Europe followed suit, causing serious damage to the European economy for more than 20 years.

"If Pantarone's methods succeed, it will damage Liyue's reputation and economy, causing people to no longer trust the Mora minted by Liyue. If Winterland acquires the Mora minting technology, it can replace the 'Golden House'. In fact, Pantarone has never given up on pursuing the Mora minting technology, so that Winterland can have its own mint."

"But because of this 'Liyue Coin - Mora' system, we just need to avoid using Mora. The counterfeit coins he made actually helped us accelerate the promotion of Liyue Coins, so I decided to play along, having Ningguang print more Liyue Coins while spreading the news of the counterfeit coins circulating in Liyue."

“I understand. Brother Han, your second press conference was to cover up the ‘over-issuance of currency.’ You lied to them and said that you printed more Liyue coins because of counterfeit currency.” Shen He quickly understood Han Fulai’s intention.

“That’s right. The Northern Bank can’t possibly admit that they only produced less than 100 billion in counterfeit currency, so they can’t stop us from over-issuing currency. I can rightfully pin the blame for over-issuing currency on the Northern Bank. This is also the second trap I’ve prepared for Pantarone. If the Northern Bank wants to turn the tables, they must empty the Mora reserves of the Liyue National Bank. And if they dare to make a move, I will make them lose everything.”

Han Fulai briefly explained to Shen He the plan to stop the North Country Bank from "exchanging fakes for real ones" and explained the significance of what they had done in Qingxupu.

Shen He only then realized that she had also participated in the scheme against Beiguo Bank that day.

However, she soon had a new question: "But... Brother Han, didn't you say there was a third trap?"

"The third trap is something I set up just in case... It depends on whether Pantalone can see through the first two traps." Han Fulai sighed. He was only able to set up this trap after he obtained the remnants of Heuria's demon god from the Salt God Ruins.

Given the level of economic development on the Teyvat continent, it's hard to imagine that Pantarone could see through the weaknesses of "fiat currency" and attack his "Liyue Currency-Mora" system. If Pantarone truly could see through this weakness, it means his thinking has surpassed that of the Teyvat continent by more than two hundred years, reaching the level of President de Gaulle, known as "the last man of France" in the 20th century!

"If he can see through the first two traps, then he will realize the weakness of our 'Liyue Currency-Mora' system. He might even think of how to destroy this system and transform it into his own monetary system. Because if the currency is not necessarily Mora, then with the Winter Kingdom's strong economic power, they can also issue paper money!"

"Huh? What weakness?" Shen He blinked. With her limited knowledge, she naturally couldn't possibly have thought of the weakness of the "Liyue Coin - Mora" system.

"The amount of Mora reserves," Han Fulai said in a deep voice. "To establish this 'Liyue Coin-Mora' system, the amount of Mora reserves is the primary guarantee. We don't necessarily need every Liyue Coin to correspond to one Mora; a moderate over-issuance of Liyue Coins is perfectly manageable for this system. But one thing is certain: we must possess more Mora than the other six nations on the Teyvat continent in order to obtain the 'right to issue currency'."

"If the Northern Bank's Mora reserves are higher than ours, then they will have the 'right to issue currency,' because Liyue currency is pegged to Mora. Whoever has the most Mora has the most credible banknotes!"

Chapter 113 Teyvat Economics, Han Fulai's Strategy (Part 2) [3k]

"Does 'the right to issue currency'... refer to the power to issue currency?" Shen He asked.

“Yes. To be precise, every country actually has the right to issue currency. But since only Liyue has a mint in the entire Teyvat continent, only Liyue has the right to issue Mora, a currency that can circulate throughout Teyvat. If Winter also had a mint, then they would have the same right,” Han Fulai replied.

“If Pantalone realizes that currency doesn’t necessarily have to be Mora, as long as it’s pegged to Mora and has credit… then they could also issue paper money, like ‘Winter Solstice’ or something. In this system, whoever holds the most Mora has the best credit.”