I'm the Dauphin in France

Chapter 1386 Financial Hegemony
From the very day the Iberian-Apennine Common Market was established, Joseph had wanted to create an international trade settlement system based on the franc.

In the early 19th century, the international payment methods used by European countries were very primitive, with only bills of exchange as an option.

For example, if merchant A pays merchant B in Naples, France, he must first apply for a draft at a bank in France to pay in cash.

The bank will then forward the draft to a bank in Naples with which it has business dealings. The draft is usually marked "payable in 30 days," and some smaller banks even specify "payable in 50 days."

Once B receives the draft, if B doesn't want to wait 30 days, they can only find a local bank to pledge the draft to them in order to obtain cash. Of course, this process will incur a "discounting" fee, similar to a handling fee.

This process is not only extremely complicated, but it also involves at least three banks—if the French bank issuing the draft does not have a partner in Naples, it may have to change hands twice. For example, it might first be issued to a Spanish bank that provides a credit guarantee, and then be cashed by a bank in Naples.

If any of the banks makes a mistake, such as the record clerk misrecording the amount or address, the draft must be returned to the issuing bank for review and resending.

The recipient may have to wait up to four months to actually receive payment.

As for why it is "payment 30 days after the ticket is presented"?
This is primarily the bank's profit model—if a loan stays in the bank for 30 days, the bank can earn interest for those 30 days. Banks that profit from discounting make a living from this; for example, the renowned Paris Discount Bank was once the largest bank in France.

Secondly, the bank receiving the draft might worry about being cheated by the cooperating bank. For example, in the case mentioned above, the Bank of Naples immediately paid the payee in cash, but the French bank found various excuses to refuse to give him the money.

Therefore, the Bank of Naples needs a buffer period to at least recover all remittances made a month ago before continuing the cooperation.

Therefore, for merchants, a transaction would take at least a month to complete—two months wouldn't be considered slow, considering the time it took for the bill to travel. At the same time, they would also incur substantial bill discounting fees.

Joseph knew very well that the trade settlement systems of later generations in his mind were a complete game-changer compared to the current bill of exchange model.

France will undoubtedly retain control of this efficient settlement system. Combined with its massive trade volume and influence in trade, the franc will eventually become the common settlement currency for most European countries.

And this will be the starting point of France's monetary hegemony!

Sitting across from him, Ludovico was completely bewildered, and couldn't help but recall his own experience studying analytic geometry.

He said somewhat awkwardly, "Your Highness, you said you wanted to 'determine the exchange rate'... but different currencies have exchange rates. As for 'currency exchange banks,' it seems that most major banks can do that nowadays..."

Joseph patiently explained to him:
"If everyone uses gold and silver coins for transactions, then there is indeed no need to intervene in the exchange rate. But when paper money is used, the exchange rate will fluctuate frequently, even at any time."

"For example, if banks in Parma generally raise interest rates, the Parma lira's exchange rate will immediately increase."

Ludoviko paused for a moment, then nodded in sudden realization.

Previously, Currucci, Ducat, and Florin could all be deposited directly into banks. Now, Parma only accepts the lira, so foreigners who want to enjoy Parma's high interest rates have to exchange their various currencies for lira before depositing them in banks.

As more and more people buy lira in the market, the lira will definitely become more and more "valuable".

Joseph continued, "Other factors, such as the government printing large amounts of paper money or a country winning a war, will also affect the exchange rate. "Of course, if a gold standard were in place, the exchange rate would become very stable."

Ludovico murmured, "Our country cannot provide enough gold reserves, so we cannot implement the gold standard for the time being..."

Joseph nodded: "That's normal. So we need to adjust the exchange rate between different currencies according to their actual purchasing power."

"This way, in actual transactions, the settlement bank can exchange different currencies according to the exchange rate."

"You see, we've brought up the exchange bank again."

“We encounter many problems when using paper money for international trade settlement.”

"For example, someone sells goods and receives a large amount of Parma lira, and now he wants to exchange it for francs, but the bank he signed with doesn't have that many francs available all at once."

"There are even some paper currencies, such as paper rubles, that you simply can't find banks in Parma willing to exchange for Parma lira."

Ludovico felt like he was starting to study analytic geometry again, and could only say with a pained expression, "Then what should I do?"

Joseph smiled. "That's where my 'currency exchange bank' comes in. However, I prefer to call it the 'European settlement bank'..."

He originally intended to wait until the franc was used more widely in northern Italy and other regions, such as reaching a quarter, before gradually implementing the settlement bank.

But Parma unexpectedly presented a "gift" – they switched to using francs for all transactions.

Therefore, he decided to take this opportunity to first establish the framework of the franc settlement system—even if only France and Parma used it in the early stages, it would be fine, as this would allow him to train financial professionals and correct system defects.

Once other countries see the extremely high efficiency of this settlement system, they will definitely gradually join in.

By dinner time, Ludovico was feeling dizzy and overwhelmed from hearing so many new financial theories, and he regretted not bringing Baron Luciani along.

To his surprise, the next day, Parma's finance minister, after reading the "European Settlement Bank Establishment Plan" sent through the Sharp signal tower, also felt dizzy and disoriented.

Baron Luciani immediately submitted the plan to the King, and on the other hand, he summoned Parma's top financiers and senior executives from several major banks to discuss its contents.

In the conference hall, Palmieri, the general manager of the Northern Commercial Bank, began to tremble slightly with excitement as he held the business plan in his hand.
"This, this is simply a brilliant idea! Defaults on bills of exchange will disappear completely, and even small banks will be able to conduct settlement business!"

The president of the Parma Chamber of Commerce next to him nodded repeatedly: "If this plan can be implemented, the settlement time for each trade will be reduced to within two or three days!"

Only a few bank managers who primarily engage in bill discounting kept their heads down and remained silent.

(End of this chapter)