Holy Roman Empire

In this world, there are always those who are fortunate and those who are not.

The biggest losers of the London Conference were undoubtedly the Ottoman Empire and the Kingdom of Poland. The former lost cities and territories, with a population weary and struggling, while the latter lost even its sovereignty.

Setting aside the details, in terms of overall strategy, the five major powers—Britain, France, Austria, Russia, and Prussia—were all winners, each achieving their strategic goals.

The Russians performed particularly well, benefiting from both ends as if the once mighty Russian Empire had returned.

However, Alexander II, considered the biggest winner, was far from happy. The recovery of lost territories greatly boosted military morale, which should have been a good thing.

Unfortunately, the Russian government couldn’t fully enjoy this victory, all due to one word: “poverty.” The war was over, but rewarding the soldiers for their achievements and providing pensions was unavoidable. If they gave nothing, who would be willing to fight next time?

The devastation of war was enormous. The reclaimed lands now required investment to restore livelihoods, and any return on that investment would take time.

All of this required money. Though it might seem trivial, in reality, anything less than hundreds of millions of rubles wouldn’t suffice.

As for loans, Alexander II had long since given up hope. International financial institutions had grown wary of Russia, and anyone lending money to them now would be considered a fool.

Alexander II asked uncertainly, “Will the gold standard reform really help us get through this financial crisis?”

At present, only Britain and Austria among the great powers have completed the transition to the gold standard. Everyone knows that the gold standard helps stabilize currency values and increases the international competitiveness of a nation’s currency, but many are still watching and waiting.

It’s not that other countries don’t want to follow suit. The problem is, what do you do if your gold reserves are insufficient? Britain and Austria monopolize over 75% of the world’s gold, leaving other nations feeling hopeless.

The Russian Empire is actually in a relatively better position because of its low market purchasing power. Russians don’t have a significant demand for foreign industrial and commercial goods. After offsetting expenditures through agricultural exports, Russia has managed to maintain a trade surplus.

But those good times lasted only until the Russo-Prussian War. Due to the war, the financial situation of the Russian government deteriorated, leading to large amounts of foreign debt. To repay the debt, Russia experienced a massive outflow of gold and silver.

This outflow of precious metals caused domestic deflation and worsened the government’s finances. To prevent the crisis from deepening, the Russian government was forced to declare bankruptcy and default on its debts.

After a few years of recovery, the Russian Empire started to stabilize. Through diplomatic means, much of its debt was written off, and an agreement was reached with the British to repay debts using grain exports. Gradually, the Russian economy returned to normal.

However, the financial issue remained the Russian government’s biggest challenge. To address the financial crisis, the Russian government issued paper rubles in 1871 with Austria’s assistance.

This was only an experiment, with the initial issuance limited to 50 million rubles under a bimetallic standard (gold and silver). The government had substantial reserves, and the market quickly absorbed the new rubles.

As relations between Russia and Austria deteriorated, the Russian government’s financial sector began leaning towards cooperation with the British, and the situation quickly took a turn for the worse.

Without Austria’s backing, the second batch of paper rubles was issued in excessive amounts and met with a cold reception in the capital markets. To maintain its value, the Russian government was forced to halt printing.

There was an agreement between Britain and Russia for the ruble to join the pound-gold system, which meant that the Russian government had to proceed with gold standard reforms.

The Russian Empire was one of the world’s major producers of gold and silver, and its domestic economy wasn’t large. Its import-export trade was generally balanced, so theoretically, the Russian government should have had no issues transitioning to the gold standard.

But that was only in theory. Once the Russian government’s credibility was factored in, the situation changed. International capital markets didn’t trust the Russian government. Unless the ruble was tied to an international currency, Russia couldn’t implement the gold standard reform on its own.

This brought up the issue of currency settlement. Whether the ruble was pegged to the British pound or to the Austrian guilder, both countries would gladly welcome it. However, the condition was simple: Russia could only use foreign currency for settlement.

No matter which way Russia leaned, the empire would inevitably suffer economic exploitation. Alexander II wasn’t overly concerned about being exploited. He was more focused on how much benefit the currency reform could bring and whether it could help Russia escape its financial crisis.

Finance Minister Kristanval reported, “Your Majesty, in theory, after completing the currency reform, we could earn 52 million gold rubles annually from seigniorage. This figure would continue to increase as the economy grows. It would significantly help improve our financial situation.”

(Note: 1 new ruble = 1 gram of gold)

The figure of over 50 million gold rubles is already significant, accounting for more than one-tenth of the Russian government’s revenue.

To ensure that seigniorage continues to grow, in addition to economic growth, there must be a sufficient supply of gold.

Kristanval wasn’t worried about the reserve gold issue, as Russia’s annual gold production was sufficient to serve as the reserve. Without that, he wouldn’t dare push for a gold standard reform.

It’s important to note that after the currency reform, the newly issued gold rubles would be pegged to the British pound, and the exchange rate would fluctuate. Without adequate reserves, it would be impossible to maintain the currency’s value.

After a moment of hesitation, Alexander II made his decision, “Let’s proceed! But we must be vigilant when cooperating with the British. We can’t allow ourselves to be taken advantage of.”

This decision marked the beginning of financial separation between Russia and Austria and signaled the nearing end of the Russo-Austrian alliance.

There was no way around it as it all came down to interests. The Russian government felt Austria’s offer was too low, while Franz considered the Russians too greedy, with costs too high to justify the investment.

In the original timeline, the French were scammed badly. When the Russian government collapsed, it left behind massive unpaid debts, devastating the French financial sector.

With that in mind, Franz chose to be cautious. Austria’s financial risk in investing in Russia was even greater than that of France. With Russia’s track record, no one could guarantee that if debts piled up too high, the Russians wouldn’t trigger a war between the two countries to avoid paying.

Of course, Austria’s financial sector lacked the wealth of Britain’s, which was another key factor. Austria needed capital for its own needs and wasn’t in a position to throw money into Russia’s financial pit.

If the Russian government couldn’t resolve its financial crisis soon, even after completing the currency reform and pegging the ruble to the pound, it remained uncertain whether the British would be willing to lend money.

The debt between Russia and Austria had already reached dangerous levels, and Franz wasn’t willing to risk hundreds of millions of guilders for Russia’s gamble. If Austria suffered losses, its economy would also take a serious hit.

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It’s not just the Russians who are eager for a gold standard reform. The French are even more desperate.

In recent years, the increasing production of silver has caused fluctuations in the gold-silver exchange ratio, which has become a major problem for the bimetallic monetary system.

Due to the changing gold-silver ratio, the value of the French franc has frequently fluctuated, causing significant losses for merchants involved in international trade.

The instability of the franc’s value has undoubtedly weakened the competitiveness of French goods abroad. As international trade continues to grow rapidly, this issue has become increasingly problematic.

Before 1854, France’s total export trade was over 1.5 times that of Austria. By 1870, the two countries’ total export trade was nearly equal, and now Austria had overtaken France.

While Austria’s natural resource advantages play a role—such as the development of its agricultural product processing industry, which added value and boosted exports—along with the benefits of leading the Second Industrial Revolution, the instability of the franc is also a major factor.

To avoid the uncertainty caused by currency fluctuations, many capitalists, under equal conditions, prefer to choose British and Austrian products.

In the past five years, the annual export trade growth rates of Britain and Austria have both been no less than 3%, while France’s growth has been a meager 0.8%, and this figure continues to decline.

Is the quality of French industrial and commercial products poor? The answer is no. Aside from a few industries, there is no significant technological gap between the industrial sectors of Britain, France, and Austria.

The market competition hasn’t even reached its most intense phase yet, and all three countries are still maintaining relatively high profit margins. Otherwise, they wouldn’t all be experiencing growth.

However, it is an undeniable fact that France is gradually falling behind, with its share in the international market shrinking.

Of course, compared to the original timeline, France’s situation is still much better, as the domestic economy hasn’t suffered significant damage.

To enhance the competitiveness of its export goods, the reform of the franc’s currency value gradually became a priority, with Napoleon IV leading the charge for the franc’s transition to the gold standard.

This could be considered the political legacy left to him by Napoleon III. By completing the gold standard reform of the franc and increasing the international competitiveness of French goods, Napoleon IV can gain the support of capitalists.

As early as 1870, the French government began preparing for the gold standard reform, continuously purchasing gold from the international market. There was no other option since France’s domestic gold production was insufficient.

God didn’t favor France this time. In addition to a lack of coal, France’s colonies also had very low gold production.

Since they didn’t have enough gold at home, they decided to buy it. Compared to the struggling Russian government, the French government could be considered quite wealthy.

After several years of preparation, the French managed to gather 800 tons of gold, but Napoleon IV still felt it wasn’t enough.

For most countries, that amount of gold would be plenty, but compared to Britain and Austria, it still fell far short.

Moreover, given the size of the French Empire’s economy, 800 tons of gold as a reserve isn’t much. Napoleon IV’s bottom line was 1,000 tons. If the reserve was too low, any speculation on the franc’s exchange rate could cause major problems.

Palace of Versailles, Paris

Napoleon IV asked in disbelief, “What, the market is actually out of gold?”

If this news got out, it would definitely be a big story, at least causing gold prices to soar significantly.

Finance Minister Alain bitterly explained, “Your Majesty, in recent years, too many countries have been undergoing gold standard reforms, and everyone is scrambling to buy gold in the market.

Currently, most of the world’s major gold-producing regions are controlled by Britain and Austria, and they are deliberately restricting the flow of gold. The amount of gold circulating in the market is severely insufficient.

In recent years, due to the lack of gold circulation, gold prices have been steadily rising. The gold-to-silver exchange rate has gone from 1:18.6 last year to 1:23.5 now.

Even at this price, it’s still very difficult for us to buy enough gold. Right now, only 200 to 300 tons of gold are flowing into the international market annually, which is far from enough for everyone.”

There’s no way around it as too many countries have been undergoing gold standard reforms lately.

In 1873, the Nordic Federation began its gold standard reform, followed closely by the German Federal Empire and the Kingdom of Prussia. Now the Russian Empire has also joined the list.

The Russian Empire aside, as its domestic gold circulation can basically meet the needs of its currency reform, the other countries are not gold-producing nations.

Even if gold production isn’t enough, the reserve for issuing currency must be sufficient, which means they have no choice but to buy gold on the international market.

At this critical moment for the gold standard reforms across Europe, it just so happens that British and Austrian capitalists are collaborating to drive up the price of gold, reaping massive profits.

It wasn’t a coincidence; it was inevitable. Capital always seeks profit, and they wouldn’t miss the opportunity to take advantage of this.

In this context, it’s not just the French who are facing a gold shortage. Other countries undergoing gold standard reforms are also dealing with the same problem of insufficient gold.