As I said, you are using a too simplified version of how the SL currency works.
Duckk reposted this info dump from David the last time we had this discussion.
Reposting an old infodump:
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.
