Persian Empire 1845

Chapter 55 Gold Standard, Rial

The changes in Iran that year were enormous, with an impact comparable to a regime change. The most important Urima forces were significantly weakened, and the remaining ones were incorporated into the government. Many paid the ultimate price for this transformation.

Except for the governor of Khorasan, all the governors of the other provinces arrived in Tehran on New Year's Eve. Nasser al-Din formally reorganized all local governments nationwide, transferring 12 provincial officials to other locations, while the remaining 9 officials were selected from within the government. They are loyal to the Shah, and policies can be continuously promoted.

“Your Highness, this is a request from Lawrence, Lister, and others. Now that local customs duties have been eliminated, it is time to unify the currency.”

The unified monetary policy previously implemented in Azerbaijan has been successful, leading to increased local trade and economic activity and a significant increase in tax revenue.

However, this was just issuing currency according to the usual gold and silver exchange rate. Now, to promote the riyal nationwide, it is necessary to determine the exchange rate between the riyal and other foreign currencies.

At that time, most European countries adopted the gold standard, so adopting the gold standard was not a problem. However, issuing currency is not as simple as just printing it out and distributing it; you also need to promote the rial through banking, laws, and other means, and eventually spread it throughout the country.

"We still need to establish a bank, which is what Lawrence has been saying. The report Hussein sent back details the situation of the Bank of England and the Bank of France, the two central banks, which I think can serve as a reference for the national bank."

Naserdin's statement is merely for reference, as both banks are highly independent. The Bank of France, in particular, is controlled by 200 banking families; from the First French Empire to the present day, no one, regardless of their background, has ever dared to approach its gates.

Aside from these aspects, other aspects offer valuable lessons for domestic banks. The central bank, in particular, is not merely a bank within a bank, but a financial sector with administrative responsibilities. From formulating financial policies and development strategies to drafting relevant laws and administrative regulations, improving the operating rules and systems of financial institutions, formulating and implementing monetary policy, and even managing the national treasury, it can be seen as a functional department in charge of finance.

“Your Highness, it may be somewhat inappropriate to put so many functions into one bank.”

Don't blame Amir for bringing this up, because allowing a bank to manage a country's finances is unprecedented.

In response to Amir's words, Nasserdin said, "Teacher, as you can see, this is not just a bank, but rather a department. However, this department has some characteristics of a bank, so I think it should still be called a bank. Of course, it can also be renamed."

Amir heard a firm voice from the Crown Prince, it seems he is determined to push this through. Hopefully, everything His Highness is doing is right.

The Chancellor of the Exchequer had no objections, and the Grand Vizier had even fewer. Hassan increasingly felt that he was being sidelined by Amir, with nothing to do except handle routine affairs.

The establishment of the bank was a done deal, but Lawrence raised another key point: issuing currency required reserves, otherwise a large-scale bank run would directly cause a currency crisis.

Naser al-Din planned to use some of the confiscated property as emergency funds to start issuing rials. As for more gold coins, he would see where he could make a fortune.

Amir also compiled the financial and trade information and handed it to Nasser al-Din. Previously, he could only access information about local areas, but now the national situation was laid out before him, and he had to take a good look at it.

In terms of its fiscal situation, Iran's annual income is 480 million tomans, equivalent to 960 million rials. This is considered good among neighboring countries, but its expenditures are a staggering 1480 million rials, resulting in a fiscal deficit of 500 million rials. According to Amir, this year's decline in income is due to the civil war. He estimates that it will recover next year.

But right now, Iran desperately needs money; various reforms require financial support, so it seems he'll have to borrow from abroad again. In terms of trade, Iran's exports totaled 620 million rials, while imports reached 930 million rials. Moreover, Iran's exports are mostly agricultural products, while its imports are primarily industrial goods. This large trade deficit and lack of tariff autonomy are obstacles to industrial development. Speaking of industry, Iran is truly lacking; its economy remains dominated by handicrafts, with the only relatively better region being Azerbaijan.

However, its industrial scale is far inferior to that of countries like Britain, France, and Germany. Not to mention, it lacks any large enterprises employing more than 500 people.

“We still need money, all kinds of money,” Nasserdin said, touching his forehead. “Let’s get the bank up and running first.”

A new year should bring a new beginning. But Naserdin was trapped by money, though the confiscated assets from Qom eased their predicament.

In order to maintain their current status, other mosques in the vicinity have had to hand over a large amount of their savings. Inevitably, some of these savings were embezzled, but the amount they handed over was still astonishing.

A total of 3785 million riyals were taken from Qom and nearby mosques, of which 1255 million were immediately usable. This money was used as bank reserves and government emergency funds.

Meanwhile, the religious army in Isfahan also surrendered. For the same reason as the army in Qom, they all went back to wait after hearing that the government was going to sell land.

Because they surrendered voluntarily, the government protected their lives and property. However, they had to give up two-thirds of their assets, transforming them from landlords into salaried workers earning a fixed salary. This psychological adjustment was too great, and it took them a long time to adapt.

Regarding the problem of low fiscal revenue, Nasser al-Din and Amir discussed generating tax revenue from other sources, such as monopolies on tobacco and salt, or issuing 20-year government bonds. However, these are only temporary solutions; the real solution lies in promoting national economic development.

The development of industry and commerce cannot be separated from the market. Looking at the world, only the British completed the Industrial Revolution, which was based on their vast colonies.

Iran lacks vast colonies, and if it wants to catch up with the British, it needs to establish a market of its own.

Including regions such as Khiva, Bukhara, Kokand, Baghdad, Syria, and Herat in the market will create a large market and become the largest economy in the Middle East.

The benefits here extend beyond the economic sphere; politically, it can also solidify Iran's dominance in the Middle East. Incidentally, it can also strike a blow against the Ottoman Empire, which ruled the Middle East for centuries.

The Industrial Revolution needed to extract resources from the outside world; this was essential, at least in its early stages, and no one can deny that. Only in its later stages could the guise of trade balance be used to profit from the high added value of products, making the exploitation seem more palatable.

Loyalty between nations is meaningless; it doesn't exist. There's no betrayal because the stakes aren't high enough.

The plan initially seemed unfeasible due to transportation issues, but the advent of the railway made it possible. Iran can connect the Middle East via railway, with Tehran as the center, and major cities linked by rail. Coupled with diplomatic treaties, wouldn't a large trade alliance emerge?

(End of this chapter)