Chapter 71: Paper Money (Part 2)

Xuanguang and Baosheng were the keys to the success of the Black Flag Bank’s currency issuance, so Liu Qing personally took charge to ensure its success. In addition to mobilizing over 2,000 taels of silver, he brought more than a dozen Snider rifles and large quantities of ammunition, including several hundred rare Remington rifle bullets. He also used franc loans to purchase large amounts of scarce supplies from Haifang, ready to release them into the market to redeem paper money.

However, after the paper money was issued, the biggest problem still came from the Black Flag Army. This situation differed from Shanxi, where the Xiliu Camp and the Black Flag Bank were two sides of the same coin—the Xiliu Camp fully supported the bank’s paper money initiative, while the bank provided loans to the camp. But in Xuanguang and Baosheng, although the Black Flag Army members followed Liu Yongfu’s orders, they lacked sufficient trust in this paper money—they preferred to spend it immediately rather than hold it.

To address this, Liu Qing visited Liu Yongfu twice in person. After repeated negotiations, he finally obtained Liu Yongfu’s order: “The camps are obligated to uphold the credibility of the paper money issued by the Black Flag Bank.”

Yet the issuance of paper money still fell short of expectations. Neither the military supplies nor the foreign goods from Haifang were enough to convince the villages or even the lower-ranking officers of the Black Flag Army of the paper money’s credibility. Many officers accused the camp officers of defrauding them by issuing 30% paper money. After nearly half of the supplies from the Black Flag merchants were used up, the paper money became a target for speculation—Shanxi’s Black Flag currency was seen as more reliable.

A considerable amount of paper money flowed to Shanxi. Had the Flower Sect not given early warning, the Black Flag Bank and its merchant firms might have closed down prematurely. But now, Liu Qing had some time to react. He decided to organize exhibitions for the Black Flag Bank to showcase its strength—gold, silver, francs, dollars—using all the reserves it had prepared. It even borrowed some gold and silver from the Xiliu Camp, but this was still not enough.

So the exhibitions turned into weapon displays. People realized that the Black Flag Bank was essentially a massive military force, with over 200 rear-loading rifles and tens of thousands of rifle bullets on display. In addition, Spencer cartridges and Jekken sniper scopes were also borrowed from the troops for display.

The original plan of the Xiliu Camp was to supply the Black Flag Bank with a small number of Snider rifles while using the rest to arm its own forces. But to maintain the credibility of the Black Flag currency, not only were all the produced rifles to be supplied to the bank, but some were also taken from active units to be sold by the bank to uphold its credibility.

After all these setbacks, the Black Flag currency finally managed to establish some credibility. Some soldiers of the Black Flag Army had initially complained that they had been deceived when given the paper money, using it as toilet paper. Now, they had to wash it clean and spend it in the streets despite its unpleasant smell.

This was the most difficult step. Next, the paper money had to be distributed to all areas occupied by the Black Flag Army, and efforts were also made to establish credibility in the northern provinces where no Black Flag Army troops were stationed.

By the end of October, the Black Flag Bank had become a major monopoly institution in Tonkin, with nearly 200 employees and operations spanning various provinces. However, both Liu Yu and Liu Qing admitted that if this trend continued without additional capital issuance, the bank would either go bankrupt or start issuing excessive paper money. The amount of paper money in circulation across the provinces had already reached over 50,000 yuan, and more would be needed for lending activities. Yet, for the crucial deposit business, only a little over 2,000 yuan in deposits had been collected so far. This situation was unacceptable, so Liu Yu wrote a letter suggesting that the Black Flag Army’s salaries be paid through the bank. The bank would provide each soldier with a savings account, with salaries deposited there monthly before being withdrawn by the individuals. But this also brought greater pressure, as the bank had to advance funds for the army every month and bear the risk of the army being unable to pay its salaries. As for the issue of empty accounts, that was something Liu Yongfu needed to address, not his concern, but it did bring in a large depositor. The 50,000 taels in taxes the Black Flag Army received annually were now managed by the bank, and it was thanks to these deposits that the bank could officially start lending. Lending is the foundation of a bank, and at present, the Black Flag Bank was essentially taking over the business of usurers by handling short-term, high-return projects. Compared to traditional Chinese money houses, they not only had more capital but also a superior business approach. Chinese money houses typically issued loans without collateral, relying on the borrower’s credit. The Black Flag Bank, on the other hand, often required collateral in addition to strict terms, significantly reducing risk and even allowing them to profit from the collateral. Liu Qing soon realized that, aside from lending to military enterprises affiliated with the Black Flag Bank, its lending activities were mostly directed toward the most profitable area—opium trade. Up the Red River, there were many opium merchants who distributed large quantities of opium to various provinces in Vietnam each year. There were also numerous opium plantations in Vietnam, and all these merchants had huge capital needs. It was a highly profitable business, but they often faced capital constraints that prevented them from expanding. Now, the Black Flag Bank provided a solution, allowing them to avoid problems with cash flow. Historically, the Kuomintang’s China Agricultural Bank played a similar role, focusing on lending to opium merchants and monopolizing the opium trade. Now, the Black Flag Bank had led to a significant increase in opium trade in Tonkin. Even Huang Zuoyan wrote asking the bank to lend to these merchants. The taxes collected from these merchants were an important source of revenue for the Vietnamese government, and if they faced cash flow problems, it would mean a sharp reduction in the government’s income.

For this reason, government officials like Huang Zuoyan hoped to receive more tributes from opium merchants. To that end, they downplayed the significance of Black Flag Bank notes, allowing anyone in provinces occupied by the Black Flag Army to use them to pay taxes to the authorities. In provinces not occupied by the Black Flag Army, the authorities tacitly accepted the circulation and exchange of these notes. The loans granted to these opium merchants were also in the form of Black Flag Bank notes, making them its most enthusiastic promoters and supporters. Moreover, they contributed nearly 40% of the bank’s profits. The bank’s other lending activities, aside from policy-driven loans to small farmers, were mostly illegal, such as periodic loans to coastal pirates and various illegal armed groups in the northern regions. All loans were issued in the form of Black Flag Bank notes under harsh conditions—requiring collateral and high interest rates. Yet in this war-torn country, where cash was always in short supply, people had already queued up three times under Liu Qing’s authority to obtain loans. Even the methods of repayment became somewhat peculiar; some opium traffickers simply used their illegal goods to repay short-term loans. To sell these goods, the Black Flag Bank even secretly expanded its operations into the central regions. In the face of the Black Flag Bank, the original monopoly system on opium was no obstacle at all. To handle larger-scale operations, Liu Qing even organized training courses for credit officers. Since the Black Flag Bank originated from fraudulent lending, the primary focus of these training courses was to counter various forms of fraud, aiming to stop any scoundrels attempting to defraud the bank immediately. The Black Flag Army’s dependence on the bank became evident within just two months. Now, the army received payments in Black Flag Bank notes, its salaries were drawn from the bank, and all revenues were deposited there. When officers faced cash flow problems, their first thought was to borrow from the Black Flag Bank. A large bank—this was everyone’s goal. But no one knew that the bank was continuously issuing paper money, and its lending to opium merchants was like a money-devouring monster. Although the bank’s deposits were increasing rapidly, much of it came from its stock of notes. The amount of Black Flag Bank notes in circulation now exceeded 200,000 yuan, and loan requests from various sources had piled up back to early 1881. If this continued, Liu Qing feared the bank would collapse during the next run on deposits. What to do in such a situation? He specifically consulted Liu Yu: “Quickly sell some of the good mines in Shanxi and the northern regions, and defraud more money from the Oriental Bank of Commerce.” Their fraudulent lending operations were no longer limited to Shanxi alone. With the Black Flag Bank as a professional institution for such activities, Liu Qing, Liu Yu, along with Deng Cunyu, Lian Jincheng, and others, decided to sell the iron mines in Taiyuan after some planning. In modern times, this area is Vietnam’s main steel industry, with abundant coal and iron resources. They even invested heavily, issuing over 10,000 yuan in loans to acquire and control several small workshops, planning to package them for listing. Liu Qing hoped to use these fraudulent loans as a foundation for issuing new notes, but Liu Yu had a different opinion.

He felt as if there was light before his eyes; now, Black Flag Bank’s financial reports looked astonishingly good, with impressive returns from short-term loans given to opium dealers, arms dealers, and others. In fact, many opium dealers shared this feeling—they had expanded their business and seen increased profits, but it seemed that the biggest share went to Black Flag Bank. Moreover, as everyone’s capital increased, competition among them became fierce, often reaching the point of brutal confrontation. A trade battle might involve hundreds of taels of opium being poured in, yet it wouldn’t even create a ripple. Anyone who stopped relying on Black Flag Bank’s loans would likely go bankrupt within a few months. Liu Yu said with a smile, “Liu Daban, don’t worry. Have you forgotten our bank’s most important investment?”