Did the MBS corner the market on trade?

GloriousRuse wrote:It is worth noting that the information advantage starts to fade as you head away from the junctions. The junctions allow you to connect some distant places and make them players, but that doesn’t make them faster than the brokerage next door.

Say you want to get an inside run on a deal, but need to know the local conditions for ...let’s call it coffee. If the system goes 10 light years -> junction -> 10 light years, you still have an information disadvantage against a bank three light years away. You have an advantage against someone who is 50 LY away (all lanes being equal), but not the local offices so to speak.

Which means you don’t actually have an information advantage over the entire universe in terms of knowin what the coffee crop looks like, you have a few bubbles of specific informational advantage near the junction ends. As you go further and further away, your advantage comes apart.

It’s a entirely possible the routing gets info from Sol to certain parts of the former SL faster than Manticore to the same spot.

Indeed, a big central competitor would be ill placed to handle local opportunities, and those with the resources would be well advised to develop local brokerages and branches instead. There does of course come the matter of capital pools, but fortunately we’re talking about Star faring worlds/Corps/nations - there’s capital to be had.

The same would also apply for shipping, which we routinely ignore.

——

As an aside to the above - really? The manties make their vast empire run on shipping industry fees?It does make you wonder why Denmark doesn’t take Maersk and turn it self into a European great power.

GloriousRuse wrote:Which actually raises an interesting point, intonations aside. The idea of a fundamentally stable exchange rate for fiat currency requires timely information. In the actual age of sail, this wasn’t an issue because coinage was mostly valued in its precious metal content.

But a manty buck or a SC or whatever isn’t. It’s subject to all the joys of a modern currency, but relies on the information structure that replicates the 1800s rather deliberately. Currency info might be days or weeks out of date; months if there’s a need for only certain verified and certified information couriers in case of data falsification. And each world has its own price structure even before fees. (For an even more fun question, when any transaction takes weeks to verify you actually have money in the bank for, how does ANY of this not fall back to vague promissory notes of wildly fluctuating value, where the social capital and trust is as important in pricing the paper as the theoretical monetary value? I suspect handwave)

Which helps illustrate the diminishing information advantage further. Info piped through junctions is only more timely and relevant when it concerns things close to both sides of the junction. If the MB is plummeting in system X, but system Y is closer than the junction is, then the local exchange rate is more accurate in system Y than the junction. And if it’s mid way between the junction and system X, it can arbitrage both sides freely.

Then we get into transactions. The largest unified currency, and the presumed reserve currency based on the thousands of trade worlds using it, is the SC. Outside of the SEM the MB is a bit of a niche. If we’re talking the currency to peg to...

Brigade XO wrote:The banking (well merchant banking house) system operated well into the 19th Century and essentialy continues today in variious formats. Letters of Credit have for the most part superseded sight drafts against accounts with banking houses. There are still private banks. There is the sort of thing you read about with the Rothschild house and others. Though officials condeming lending/borrowing with interest, the Papacy regularly borrowed from Italian and other banking houses to fund-all sorts of things.

Sight drafts were often issued in multiples (19th cent and before) as they represent an order of transfer against an account held with a company but the transportation systems could be iffy. Think sailing ships crossing the Atlantic or comming from the Med or somewhere out in Asia and part of their cargo was mail. So if you wanted to instruct Mudbank &Sons to pay up to X dollars (or Pounds or Franks or whatever) for varioius goods and ship them you would send three or four copies of the same draft (marked 1 of 4 etc) and whichever one got there first was the one executed- copies arriving later would be destroyed. Or you told your agent (or the bank) to give an amount to another person or company. Same thing.

You could encrypt or encode (encode at least wouldn't look like it contained a secret piece) and the recipient at the bank/financial house would check it againt house documents.

Anybody dealing with the equivalent of international money transactions is going to have to check on the current availilable information before paying. At the moment we are useing electronic data systems. Interstellar you are going to have to depend on interchange by courier of updated data being forwarded out though whatever systems they have in place. There are a LOT of dispatch boats going through the Manticore Junction so one part of such system is for all sorts of people and companies to be forwarding commercial data (including banking and local stock exchange info) as secured data packets and/or by chip for delivery to X. In other words, you send encripted e-mail to your branches, affiliates, correspondents and all sort of other arrangements. As often as you have a ship heading in that direction or possibly also sets to various correspondents on Manticore to be forwared to a list of places as traffic moving through the juntion permits.
It's not sneaky, it prudent.

There is always going to be attempts at fraud on many scales. As far as somebody taking all the credits out of thier bank in X system and then writing a check against that account in Y system, that is what Holds are for. You can deposit anything you want but the bank has the right to restrict the withdrawal of those funds for an amount of time- and that can vary widely.

Which is why if you are going to need the money right away you have to either get a Chashier's Check- which is still subject to holds but there are some mitigating properties, or you get a BANK WIRE /wire transfer via a correspondent bank (or the home office if you are going to be dealing with branch of the bank in a diverent soverign nation) and you get "good funds" on the loca bank's receipt of the wire. So though it isn't explicitely stated in the series, there has got to be a way to transfer "good funds" across interesetllar distances. Just not to every backwater system.

runsforcelery wrote:In response to the concerns being expressed over how withdrawals might be managed/policed over intrasystem distances. To be honest, this problem is simply not going to arise very often because people who are going to be making bank transactions will tend to be clustered in certain areas of the star system. It's unlikely that anyone is ever going to build a casino in orbit around Neptune or a shopping mall in orbit around Uranus. There are several ways in which banking institutions can deal with this sort of problem on the rare occasions when it arises. A given bank may use any and/or all of the approaches listed below.

First, if a banking institution has multiple nodes in a single star system and they are more than a very few minutes apart in terms of transmission times, then any customer's account may be distributed across all of those notes. That is, if the bank has 4 nodes, then no more than 25% of the account holder's funds may be withdrawn from any one of those nodes except by prior arrangement. This doesn't prevent a theoretical simultaneous withdrawal of funds from two separate locations, one of which might be unauthorized, but it does limit the percentage of funds which could be skimmed/scammed in this way.

Second, every Manticoran bank (and virtually every major non-Manticoran bank) issues electronic, encrypted withdrawal cards (or their equivalent) which must be presented for a withdrawal. The account holder may select the number of cards to be issued; once they are issued, however, it is the account holder's responsibility to maintain secure possession of them. By law (at least in Manticore) any funds disbursed to the holder of a verified card cannot be recovered from the bank by the account holder unless there is proof of wrongdoing by the banking institution. If it can be demonstrated that the card was illegally in the withdrawer's possession, then the withdrawer is legally liable for the funds, but the bank is not. If it can be demonstrated that the card was counterfeit or that the bank's security was hacked (whether by the bank or the withdrawer), then the bank becomes liable for restitution of funds on the basis that it should be more careful about its own electronic security.

Third, in most star systems it is the account holder's responsibility to inform the bank if he is traveling to a location which is going to be beyond reasonable light-speed-limited transmission ranges of his normal bank branch, just as it is the responsibility of a debit card in the United States to inform his bank if he's going to be traveling overseas or spending enough time in another state for him to have significant banking activity. The bank reserves the right to refuse to allow withdrawals from a distant site unless it has been informed and had of time that the customer will be traveling to that site.

Fourth, many banking institutions specifically state in their contracts with their account holders that transactions and payments will not be made until there's been sufficient time for notice of the transaction to reach their central banking hub in a given star system and confirmation of it to return to the site at which the transaction or payment is to be made. This may occasionally be inconvenient, but it would be highly unlikely for any transaction to be more than four or five light-hours from the bank's central hub. The maximum distance between Neptune and Earth, for example, is about 4.34 light-hours, so turnaround time on a transmission across that distance (which is enormously greater than most people are going to have to worry about in a star system) would be under 9 hours.

Fifth, the Banco de Madrid is not (by any means) the only bank which issues the equivalent of coins. A prudent traveler takes a supply of those, issued by his own bank, with him in a highly unlikely instance in which he's going to travel so far from home with in his own star system that communications lag would become a problem. It's also common practice for the account holder to "wire" what he considers to be a sufficient balance to a bank node at his destination, with the understanding that his withdrawals from that node will be limited to the funds he transferred into it.

Frankly, as I say, this situation is going to arrive very, very infrequently. The possibility/probability of deliberate fraud factors into the banking industry's basic assumptions, and practical safeguards have been worked out to prevent it. Those safeguards may, on occasion, fail, but when they do, it is almost always the result of deliberate criminal activity which brings in the legal authorities and in which liabilities are clearly established by law.

About money . . . .

I haven't even peeked at the threads on money or speculation on how the financial system works in the Honorverse. I'm sure there's all kinds of neat stuff in there, but my own thoughts on the subject have shaped the way I've seen the conflict between Manticore and the Sollies shaping up from the beginning. I imagine that trained economists could pick all kinds of holes in my basic assumptions, but this is the systemic foundation for financial transfers and institutions which has underlain the series from the beginning.

The financial system in the Honorverse is both very modern and very archaic to our 21st-century eyes. It is modern in the sense that virtually all currencies are "abstract," based on something other than, say, precious metals, and very archaic in that there is no interstellar equivalent of instantly verifiable wire transfers or similar financial instruments. Everything has to be transported physically between star systems.

This results, among other things, in a two-tier financial system. Within a star system, transfers can be instantaneous or very close to it. Electronic delays are counted in minutes, not hours or days or weeks, and so there is very seldom a physical transfer of cash or cash equivalents. As a result, the mechanics of intra-system economies are “paperless,” with procedures which can easily extrapolated from our present-day experience.

Between star systems, things get trickier. Here, something has to be physically carried from Customer A to Customer B, which is where institutions like the Banco de Madrid really come into their own. Interstellar financial transfers come in many styles and flavors. The example which was used in Torch of Freedom was of the Honorverse equivalent of cold cash, or possibly what we might think of today as bearer bonds. There are many, many other types of financial instruments, the majority of which are usually some variation of a letter of credit, stock certificates, or bonds.

As far as the currency itself is concerned, the argument has been made that the Solarian League, because it has no government in our sense of the word, cannot issue currency. This is in error. Or, rather, not entirely correct. The Solarian League was expressly empowered to create a currency when the Solarian Constitution was written. It does this through a network of chartered banks (one of which is the aforesaid Banco de Madrid), which was originally built around banking institutions which predated the creation of the League. Prior to the creation of the League, those banking institutions operated much as the great banking houses of Western Europe did during the Renaissance, resulting in a high degree of risk and a correspondingly high interest rate, both of which were . . . detrimental, shall we say, to the establishment of a sound interstellar economy, which was, after all, the primary reason for the creation of the Solarian League in the first place.

You can think of the individual members of the League banking network as "sector banks," if you like, since they are distributed around the League in order to facilitate transfers of data and credit. They are closely regulated by the Solarian League government (i.e., by bureaucracies like Agatá Wodoslawski's Treasury and Omosupe Quartermain's Ministry of Commerce) both in terms of banking practices and in terms of cash reserves. The cost of the regulators and inspectors is paid out of "service fees" generated as part of the banks' overhead as a very, very low percentage surcharge on all bank transactions, which also serves as the primary funding for the League Deposit Insurance Agency. When I say a very, very low percentage surcharge, that's precisely what I mean; it's so teeny as to be unnoticeable by virtually all consumers, but it's also (legally) dedicated to supporting the financial/banking system and cannot (legally) be used for any other purpose since it does not (legally) go into the League Treasury's General Fund. (You did notice that I said "legally," I trust?) As part and parcel of the regulatory process, the Treasury regulates the exchange rate between Solarian and other currencies, although the actual value of the Solarian credit is, of course, determined by the currency-trading market. Each bank's credits are issued by that bank and backed by that bank's total reserves and deposits, and the League regulatory agencies with bank oversight are required to ensure that no bank issues a total number of credits in excess of its reserves and deposits. In the event that a bank should experience a failure anyway — as the result of a short-term run or for some other reason — the LDIA steps in to insure deposits and also to ensure that any legally issued credits of that institution will be honored. Obviously, the LDIA is legally required to maintain a fund which is huge in absolute terms although it is proportionately quite small in comparison to the overall League economy.

In essence, the value of any currency in the Honorverse is notional, but while it is not backed by physical bullion or other "precious commodity," it is backed by the assets of the issuing authorities and indirectly by the "faith and credit" of the League government. Within the League, those issuing authorities on the sector banks and their currency is backed by their total assets, yet the existence of the LDIA effectively pledges the League to stand behind the sector banks, and so — ultimately — the real "security" for these Solarian credit is the Solarian economy itself, which is so huge and so widely spread as to be virtually invulnerable. Portions of the League may experience economic downturns, but in the entire history of the Solarian League (previous to current events, at least) there has never been a League-wide financial crash, and the LDIA coupled with Treasury and Commerce's regulatory agencies have been able to smooth out even some very severe economic bumps in the road. In the final analysis, no one has ever believed for a moment that the League could go bankrupt, and since the entire reason for the creation of the League in the first place was to regulate and secure interstellar commerce, it was given constitutional authority in terms of the banking industry in general that it was very deliberately not given in other "national policy" areas. (This is one reason why both Wodoslawski and Quartermain are Mandarins.) Moreover, the League is required by its constitution to bolster the LDIA out of the general fund, if that becomes necessary, as a first charge on its resources. That is, it would be constitutionally required to divert funds from, say, the SLN's budget to cover LDIA expenses, if the balance generated by the transfer fees proved insufficient. Although the League's legal revenue sources are constitutionally limited in order to preclude the growth of a huge and hugely powerful central government (at which, obviously, the drafters of the constitution ultimately failed), the absolute amounts generated by the network of legal service fees are vast, and prior to the current tension with Manticore, confidence in the ability of the League to honor its debts has generally been very high. Estimates of the percentage of total government revenues which are lost to corruption and graft run as high as 15% of gross revenues, but that still leaves an enormous amount of cash in the till.

All of the sector banks maintain in-house interstellar accounts through which transactions can be moved. For large economic transactions, such as those between transstellars and their customers/suppliers, letters of credit are the customary form of transfer. These are specifically authorized at the time of issue and are automatically accepted — subject, of course, to verification of all security codes — by the local branch of the issuing sector bank or one of its banking partners at the destination system. In essence, they are internally verified when they are presented. (There are occasional instances of embezzlement or similar bookkeeping fraud, but they are normally covered by insurance — or, in a handful of particularly spectacular cases, by the LDIA — and are virtually never on a scale which could threaten the overall system.) Smaller transactions, such as those by travelers or private individuals, are usually handled electronically on an intra-system basis or using credit chips similar to those used in Torch of Freedom on an interstellar basis. The credit chips can be thought of as either currency or as travelers checks, whichever way works best for you. They are bank instruments of a particular value issued by a non-governmental bank but so subject to regulation and oversight that they are in effect a government-backed currency.

Other star nations issue their own currencies. For most star nations, this will be an intra-system currency, since most star nations are single-star polities. Star nations with multiple star systems like the People's Republic of Haven (which is the largest non-SL star nation currently in existence) generally use a system similar to the League's, except that most such star nations have central banks which are government institutions rather than working through the quasi-private system of sector banks used by the League. Obviously, the PRH's shaky economic condition meant that its currency was sharply devalued, which only added to its problems prior to its ill-advised clash with the Star Kingdom. In fact, while Rob Pierre was busy reforming the PRH's economy, his currency was virtually worthless for any interstellar transactions outside the People's Republic itself. Needless to say, that didn't make his task any easier.

Manticore, because of its strategic location in the transportation system, is an obvious financial hub, and the majority of the League's sector banks have/had local offices in the Star Kingdom. Several of the local branch managers have strongly advised their superiors "back home" to convince the League government to back off on confrontation with the Star Empire, but most of their warnings have been couched in terms of the damage Manticore could inflict on the League's financial institutions rather than on an appreciation of the Manties' war-fighting technology. As such, they were initially disregarded by bureaucrats who thought they could rely upon the Invincible Solarian League Navy to enforce a military solution in their favor. Wodoslawski and Quartermain were far more sensitive to the bankers' warnings, and have a far better appreciation of the potential damage the SEM could inflict upon the League's economy. Nonetheless, even they have failed to appreciate the threat Manticore poses to the League's fundamental financial structure. No one in the League has the least experience dealing with an opposing star nation which is actually in a position to seriously damage the League's economy, and the notional value of the League's currency depends on the stupendous, monolithic strength of its economy. If that economy tanks, one can expect the League's currency to tank, as well, and no one in the entire galaxy has any clear notion of what would/might happen if the League's interstellar economy essentially collapses.

On the other hand, there might be one or two economists in the Mesa System who could have been considering possible ramifications in this direction for, oh, the last few years or so.

Tum-te-tum-te-tum.

cthia wrote:For instance, the points that are the furthest away from ALL junctions, may be ripe for exploitation. There is a price to be paid for operating in the outback, boondocks, the sticks, the boonies, nowheresville. I would expect there are places in the HV where a ship arrives every blue moon. Certainly very infrequently. It is THEIR responsibility to stay current. These outposts may be the perfect spots to exploit.

Case in point. My grandfather started us all collecting gold. He gave each one of us three one oz. Liberty Gold Coins. They were worth less than fifty dollars an ounce when he bought them. And worth nearly one hundred fifty when I received them. I started buying gold at some point. I realized that it was cheaper to buy from private dealers instead of banks, etc., because of the hidden costs.

Flea Markets became my target. I could buy several coins easily, at a little above cost. The seller would make up to twenty dollars or more per ounce. Cool. It was quick, easy and painless. One day in 2009, the value of gold jumped by almost three hundred dollars overnight.* The seller at the market didn't know because he had not had a chance to check gold prices because the dealers at the flea market have to set up their booth at the market rather early. I purchased eleven liberty dollars and made almost three grand on the spot. It is up to the seller to remain current. They won't always be current.

If you are from the MBS, it might behoove you to check local prices of commodities against the printout from the MBS.

I wonder if the Commanding Officers of warships are allowed to dabble in local markets, knowing that the price of gold has just quadrupled yet the news hasn't made its way to the boondocks. Would that be frowned upon?

* Before I get pulverized, that huge jump was not LITERALLY overnite. It happened over a course of months. I had not been keeping up with the price of gold. Neither was he. I was shocked to find out the then current price and went straight to the Flea Market. I made out like a bandit.

****** *

Jonathan_S wrote:<snip>


I'm sure there is a fair bit of speculatory arbitrage; but I also suspect that the bread and butter revenue that covers the ship's note comes from perfectly boring fees for hauling containers of other people's cargo from here to there.