The Arren Fractional Notes—Alex's paper currency—were highly effective locally, but their value was constantly questioned in international markets. Baron Tarsus's neighbors and the merchants of the coastal city-states preferred the traditional medium of exchange: gold. This volatility created uncertainty and forced Alex to pay a premium for imported luxury goods and rare materials (like the copper for his telegraph).
"We have solved all the internal risks, Hemlock," Alex said, reviewing the latest exchange rates. "But the value of our currency is subject to the external variable of trust. We need to remove the variable. We need to peg our currency to an asset that is universally accepted and inherently scarce."
He decided to invent the Gold Standard.
The Declaration of the Gold Standard
Alex called a rare meeting of all major stakeholders: Garth (Technical Assets), Silas (Production Assets), Hemlock (Financial Assets), and the lead Security Foreman, Kael (Physical Assets).
"Effective immediately," Alex announced, "the Arren Industrial Syndicate will implement the Gold Convertibility Act."
* Fixed Value: The Syndicate declared that one Arren Fractional Note was guaranteed to be convertible on demand into a fixed, measurable quantity of gold held in the AD&T vault. This quantity was non-negotiable and publicly stated.
* Pegging the Currency: This act gave the paper currency an "unbreakable peg." It was no longer a promise based on faith; it was a receipt for a tangible asset. If the note's market value dropped, people could immediately redeem it for gold, forcing the market value back up. If the market value rose too high, Alex could release more Fractional Notes, stabilizing it.
* The Gold Requirement: To sustain this promise, Alex needed a massive, continuous influx of gold. He dispatched Hemlock with a simple mandate: use the massive profits from the military contracts to buy gold, and only gold, in every market, at every price.
**
The Gold Convertibility Act immediately caused a localized panic—an impromptu "bank run."
Dozens of skeptical local merchants and minor nobles, wary of paper money, showed up at the AD&T vault, demanding their notes be instantly redeemed for gold. They wanted to expose the "fraud."
Kael, the stoic security chief, managed the queue with military precision. Hemlock, meanwhile, calmly counted out the gold for every redemption, never refusing a single demand.
The sight of the Syndicate willingly and effortlessly giving away its gold had the opposite effect. The merchants realized the promise was real. After redeeming their notes, they immediately deposited the gold back into the AD&T, preferring the convenience and security of the paper notes to the risk of transporting heavy metal.
The "bank run" failed, but in doing so, it became the single greatest public demonstration of the currency's stability.
With a stable currency and a gold reserve, Alex was ready for the global stage. He extended credit financing and accepted payment for his steel in Arren Fractional Notes to international buyers.
The coastal city-states, tired of dealing with dozens of unstable local currencies, quickly adopted the Arren Note for trade. It was reliable, convertible, and backed by the kingdom's largest military supplier. The Arren Industrial Syndicate had effectively invented the world's first reserve currency.
***
Hemlock, having survived the stress of the bank run, developed a strange new habit. Whenever a large, hostile merchant tried to negotiate prices, Hemlock would no longer argue. He would simply open the massive vault doors, stand silently next to the sparkling mountain of gold, and offer the merchant a pen. The sight of the wealth, backed by the Syndicate's efficiency, always broke the merchant's resolve.
Alex, meanwhile, used his newfound financial hegemony to strike at the final, biggest weakness in the kingdom: its reliance on external, expensive imports.
Next priority: The kingdom lacks its own source of cheap, reliable fuel. To truly free himself from external economic pressures and lower the production cost of steel and rail, Alex must find a domestic power source that outperforms charcoal. It's time to invent coal mining and coking.