Chapter 1118: Circulation is the Key to Economy

After gaining insight into the activities of some noble families from Yuan Shu, Chen Xi realized that it was time to start planting seeds of his own.

"Chen Bo, help me find Wenru," Chen Xi instructed his steward upon returning home.

"Master, shortly after you left, Li Changshi arrived. He is currently waiting for you in the main hall," the steward replied with a bow. "However, it seems that Li Changshi is in a bit of a bad mood."

"Oh, I’ll go take a look," Chen Xi nodded and strode towards the main hall, where Li You sat with his eyes closed, resting.

"Hey, Wenru, you're surprisingly idle today," Chen Xi greeted him as he entered, casting a shadow in the doorway that caused Li You to open his eyes.

"Not exactly. It's just that we’ve run out of money, so I can’t keep working," Li You, who had been tirelessly working, replied with a hint of frustration that was all too apparent.

"There's nothing we can do about that. We only have so much to spend, and in comparison, what Zizhong is working on is more urgent," Chen Xi sighed, taking a seat in front of Li You. "Actually, I’m curious—how did you manage to get ten billion coins? Without my seal, no one should be able to withdraw funds."

"That’s because you signed off on it," Li You rolled his eyes. "And since you could approve the withdrawal of ten billion coins, why aren’t we accelerating the construction process? Our overall progress is painfully slow."

"That’s impossible. Every withdrawal I approve has a backup record to avoid discrepancies or overspending. After all, I carefully consider each large expenditure to prevent market instability," Chen Xi shook his head. With his high position, he had become more cautious than ever.

"Honestly, Zichuan, I’ve never understood what you’re being so cautious about. If we can take out the money, then we can spend it. If we run out, we’ll deal with it when the time comes," Li You replied with a tinge of dissatisfaction.

Li You had meticulously planned how to allocate every million of those ten billion coins, but then seven billion of it had been directly transferred by Mi Zhu. He couldn’t even get angry, which left him bottling up his frustration and coming to Chen Xi for answers.

It was fortunate that Li You had excellent self-control; otherwise, he would not have remained so calm.

"Alright, let me briefly explain my methods to you. Understand as much as you can, and I’ll explain the rest, but not in too much detail," Chen Xi, seeing Li You's expression, decided to give him an explanation.

"Fine, go ahead. I’m listening carefully," Li You sat upright, adopting a respectful attitude. In matters of internal administration, everyone under Liu Bei was willing to follow Chen Xi’s lead.

Chen Xi then gave a concise explanation of economic regulation, political economics, the fundamentals of probability, macroeconomic control by banks, and inflation rates. Li You understood the initial part, but as Chen Xi delved deeper, his head began to spin.

"So, you’re saying you don’t actually have a single coin?" Li You, while struggling with the details, grasped the core idea.

"Exactly," Chen Xi smiled. "It’s like borrowing a chicken to lay eggs. They deposit ten billion coins with us, I transfer it to someone else, and when they come to withdraw it, there’s a good chance I’ve already made money from it—or someone else has already borrowed it."

Li You was shocked. This kind of system seemed bound to fail, right? How could this not lead to disaster?

Seeing Li You’s astonished expression, Chen Xi remained unfazed. "Don’t worry. As long as we avoid a run on the bank, no one will ever discover our situation. Besides, we have an abundance of free labor right now. Every coin in my hands generates far more profit than its initial value."

"So, you’re just patching holes as you go along, meaning we don’t actually own any property in Qing Province, Xu Province, or Mount Tai?" Li You frowned.

"How can you think of it that way? I’m not patching holes; I’m simply allowing the money to flow through. To be precise, I haven’t spent a single coin. There’s a concept called dynamic balance between income and expenditure," Chen Xi said with a satisfied smile.

Li You didn’t fully understand the concept. While he felt that this system was unreliable, Chen Xi had been running it for years, from using IOUs in the early days of building Mount Tai to maintaining a dynamic balance at the bank. Moreover, the territories under their control were flourishing.

"What about the promissory notes the noble families are using? What do they count as?" Li You asked, furrowing his brows. This was the biggest issue.

"That’s money too, and it’s equivalent to real currency," Chen Xi explained calmly. "Those notes are backed by my credibility and serve as a substitute for copper coins."

Seeing the confusion on Li You’s face, Chen Xi sighed and pointed to the teacup on the table. "Let me put it this way, Wenru. How much do you think this teacup is worth?"

"It’s a fine white porcelain cup with intricate floral and bird designs, a rare piece in the world. At least ten thousand coins," Li You answered after examining the teacup.

"Now, Wenru, if you used this teacup as collateral in a trade, and after acquiring goods worth ten million coins, the other party came to redeem the teacup for ten million coins, how much would this teacup be worth?" Chen Xi asked with a smile.

"Ten thousand coins? No, ten million coins... but..." Li You frowned, as if on the verge of a realization.

"You’re saying that the promissory note is like the teacup. The teacup’s value comes from the belief that the person who handed over the goods will be paid, and the teacup itself is just a symbol of that trust. The promissory note is the same," Li You said, suddenly understanding.

"Exactly. It’s just a symbol. People trust the bank, and they believe that whenever they bring the note to exchange, they will get their money back. That trust is backed by my credibility and the forces behind it," Chen Xi nodded. "That’s what credit currency is."

"It has no inherent value, but it circulates based on the issuer’s credit. This is why the promissory notes I issue can be exchanged for goods or copper coins," Chen Xi said calmly. "And as you suspected, I really am conjuring money out of thin air."

Li You was speechless. Though he had jokingly accused Chen Xi of creating money from nothing, it turned out that, after many twists and turns, that was exactly what was happening.

"Although I am creating money from nothing, it's not without limits. If I exceed a certain threshold and cannot give those promissory notes real value, there will be consequences," Chen Xi said with a hint of melancholy. This was why he wanted to incorporate more noble families into the bank and connect it with the finances under Cao Cao and Sun Quan.

The larger the scale, the more funds he could mobilize as collateral, and the lighter the burden of maintaining credibility. This would also reduce the risk of the system collapsing. Once the system was stable, Chen Xi could withdraw, handing it over to the state, which would then be able to control the noble families’ economic influence.

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