I'm the Dauphin in France

Chapter 1387 The Lubricant of International Trade
Another bank manager exclaimed, "What's even more impressive is that we can now accept drafts from any Swedish or Polish bank that has never done business with us before."

Palmieri immediately smiled and said, "From now on, we will pay for the goods directly instead of receiving drafts."

The Palumbo family heir, sitting on the east side, asked him in a low voice with a puzzled look, "Partnering with a bank we've never done business with before? How is that possible?"

The latter pointed to page five of the "Proposal" in his hand: "Here, you can see that the European Bank for Settlements will be responsible for verifying their qualifications and ensuring that every settlement application they submit is credible."

Baron Palumbo struggled to read the text, then looked again with pleading eyes at the manager of the Northern Commercial Bank.

Although the Palumbo family is an investment family with a history of nearly two hundred years, by his generation, they have become all about eating, drinking and having fun, and they simply cannot understand the new financial concepts in the business plan.

Because the Northern Commercial Bank had extensive cooperation with the Pablo family, Palmieri had to patiently explain to him:

"You can think of the European Bank for Settlements as an institution responsible for trade surveillance and transit."

"From now on, any bank that wants to conduct trade settlement business between France and Parma must sign an agreement with it and submit certain collateral."

"When merchants from both countries conduct transactions, the payment settlement application is first sent to the European Clearing Bank. Only after the bank verifies that the payment has indeed been received and has not been misappropriated will the application be sent to the bank in the seller's country."

"The bank that receives the settlement request will pay the seller immediately, because the Euroclear guarantees that the requesting bank will not default. [Note 1]"

Baron Palumbo's eyes widened: "Pay immediately?! How can the European Bank for Settlements guarantee that the bank that issued the application isn't playing tricks?"

Palmieri maintained his smile and turned to page six of the "Plan": "The European Bank for Settlements will station inspectors at all participating banks to ensure that the banks that submitted applications have indeed received the money and deposited it into their treasuries, and then confirm the transaction with the European Bank for Settlements."

Similarly, the European Clearing Bank will first confirm that the seller's bank can provide the funds before sending the application to them.

No bank can send someone to monitor banks in other countries at all times, but Eurobank, as an authorized third party, can do so.

This seemingly simple financial model easily solves the problem of default in cross-border settlements, but historically, it didn't appear until the 20th century.

"This is a brilliant idea!" Baron Palumbo nodded vigorously in astonishment.

This way, banks that submit applications can no longer forge drafts to obtain funds from the other bank. Banks receiving applications will also be less likely to deliberately delay payment due to a lack of cash flow.

“Wait a minute,” he immediately thought of another problem, “President Quirico just said that the transaction could be completed in two or three days. But it will take at least a week for the application form to be sent from Paris to Parma.”

Palmieri sighed and turned another page of the "Plan": "Here it is. From now on, all interbank settlement business will be conducted through the Sharp Signal Tower, and the application form can be delivered in half a day at most."

Baron Palumbo immediately shook his head: "This is too unsafe. If someone spyes on the signal tower, it will lead to the leakage of transaction information. Someone might even forge bank settlement documents to swindle money."

His concerns were not unfounded. The Sharp signal towers were all built high up, and anyone could easily see the flashes of light transmitting messages through binoculars. As for forgery, while the possibility was low, it wasn't impossible if signal tower staff were involved.

“You don’t need to worry.” Palmieri read aloud from the plan in his hand, “'Asymmetric encryption technology,' um, invented by His Highness the Crown Prince of France, is said to be absolutely impossible to crack.”

"The Paris insurance company also insures all settlement transactions, and will fully compensate for any losses if the password is cracked." Well, it's not that it's "absolutely impossible to crack."

Limited by the computing power of the time, Joseph could only use 32-bit RSA encryption technology, which is to encrypt the text by solving the "large integer factorization problem".

A mathematical genius can decipher a secret message in about six months.

Yes, encrypting a cross-border payment request using the Leibniz mechanical calculator would take half an hour to an hour.

Fortunately, there are many people in France who excel in mathematics, so every bank can find staff to handle encrypted calculations.

But this is still far more efficient than a bill of exchange.

This encryption method has actually been used in the French military for several years and has now been "demoted" to the financial sector.

Meanwhile, Lagrange and several mathematicians were designing other asymmetric encryption methods for the French army—with the asymmetric encryption concept brought by Josephus, finding suitable mathematical tools was not too difficult.

Sitting next to Parma's finance minister, the manager of the Noceto City Bank frowned as he looked at the "Plan" and said, "Your Excellency, I have another question."

"If our banks run out of francs, foreign buyers will be unable to convert their payments into francs, leading to a trade disruption..."

The president of the Parma Chamber of Commerce immediately smiled and said, "You probably didn't notice the 'multilateral netting' rule."

"This is one of the most impressive things about the European Bank for Settlements."

"All settlement requests will remain there for one day."

"Their employees will offset settlement requests between banks in various countries. For example, a bank in our country needs a bank in Paris to pay 1 transactions totaling 500 million francs. Meanwhile, Paris also needs a bank in our country to pay 480 million francs."

"In this way, the European Bank for Settlements will coordinate with the banks in both countries to make internal allocations, so that only 20 francs will ultimately need to be physically settled. This will minimize the problem of insufficient bank liquidity."

He opened his arms wide: "I can already see how trade will flourish because of this system!"

[Note 1] This is an explanation for those who are not very familiar with international trade. Because the buyers and sellers in international trade are often far apart, they usually only meet once when signing the initial contract, and all subsequent transactions are completed through bank transfers.

This way, buyers can simply pay for the goods at their local bank and receive them. Sellers also receive payment at their local bank and then ship the goods.

Therefore, banks are an indispensable part of international trade.

Meanwhile, the bank serving the buyer will not actually send the payment overseas. Instead, it will only issue a payment application, which will be advanced by the seller's bank. Then, the two parties will settle the payment in cash every once in a while.

(P.S. Financial knowledge is really too difficult... Although I've been updating only once a day lately, I've been reading for at least three or four hours every day to learn this financial knowledge T_T, especially 19th-century finance, it almost made me cry! Once I get through this part, I'll resume updating twice a day as soon as possible.)
(End of this chapter)