Friday Dispatch #3 - Money, Money, Money

Every government functions on 2 core basis: Money & Army

Everybody loves money, and so do we here at crisis,

so this week, let's talk about how money works in the game!

In order to protect the country and/or ruler, the government needs to support an army.

In order to support the army, the government needs money.

So, how does a government gets money?

In crisis, the government can get money "naturally" and "artificially".

Let's talk about the simple one, the "natural" way of getting money.

The government can collect taxes and/or exploit natural resources to get money from them.

1: Taxes

Every country have an effective tax rate of the economy and gets a portion of the GDP as income.

We will have a future #CFD talking about the tax and economy in detail.

Effective tax rate can be increased by either increasing the nominal tax rate or reducing the tax loopholes.

Increasing the nominal tax rate increase dissent and will cause problems for any government.

In democracy, this is especially dangerous as it might cause you to lose the election.

Reducing the tax loopholes on the other hand does not causes dissent and greatly increases your popularity.

Instead, what happens is that you will be pissing off the elites.

The media might start criticizing different parts of your government with under-performing ministries, generating dissent for the population.

There will be lobbying and you might be getting a full-blown crisis attempting to remove you from office.

But with all crisis, comes the opportunity for change.

Fight the crisis.

Boost your popularity by fixing the under-performing ministries.

Change ministers whose views are not in line with yours in the process.

Use intrigue, benefits or outright bribery to get MPs on your side. 

Defeat the no-confidence motion and rise with a majority behind you.

Should you pull this off, you will be much stronger and popular and be on the path to the greatest commander-in-chief the country has ever seen.

2: Natural Resources

Some country will start with extremely valuable natural resources which they could either export through international trade or process the resource within your country and create the entire value chain booting your GDP.

By extracting natural resource, you will cause dissent on the local population within the province who will be agitated even more if you decide to expand the operations.

The amount of natural resources that can be extracted will be impacted by the technology level with some of them requiring certain technology (e.g. shale oil) before you can start extracting

Increasing your technology will reduce the dissent caused by natural resource extraction in the province, while simultaneously increasing the output.

Lastly, there is the "artificial" way of  getting money.

3: Money cycle

Every country generates money by creating currency.

There are 2 ministries to facilitate generating money: Central Bank and Ministry of Finance

The central bank will create currency by either printing notes or minting coins.

However, the money is now locked within the central bank vaults and has no way to be used by the government.

The ministry of finance issues bonds (government loans) which the central bank and/or public buys.

Hence, the currency gets transferred to the ministry of finance and spends it on government expenditures therefore pumping the money into the economy

To put it simply:

1. A person (government) request a loan from a bank (central bank).
2. The bank uses the money it has to lend it to the person.
3. The person spends the money away and repays the interest every quarter.

The difference here between this and normal people and banks is:

• Central bank is owned by the government 
• Ability to create currency

As the government owns the central bank:

1. Government pays debt interest to central bank
2. Central bank makes profit
3. Central bank gives profit to shareholders (government)

Since the central bank can create currency, it will never run of money to lend.

And so, when the government generates money, what we really mean is that the government can "loan" any amount of currency they want from the central bank effectively interest free.

You could "artificially" generate money by increasing the amount of bonds the finance ministry issues.

The bond would be bought by the public if the central bank does not purchase it.
If so, the government will have to pay interest to the public quarterly.

If the central bank buys up all the bonds, it will be effectively "free" money.

However, as the government generate "free" money, the currency reputation drops for the currency.

Try not to let the currency reputation drop below certain threshold:

• 90%: Institution will start to convert currency with central bank if it is commodity-backed
• 75%: Citizens will start to convert currency with central bank if it is commodity-backed
• 50%: Foreign goods can no longer be bought in local currency
• 20%: Citizens abandon currency

These numbers are subjected to changes when we balance the game.