The World Economy of the Equestrian Federation · 6:48pm Aug 30th, 2021
After the last chapter for Fólkvangr I decided that a post about money would be a nice idea.
So, Gaetana explains to Gilda that one Eagle is equal to one Bit. That would depend if griffons would be willing to exchange the Bits they already have 1:1, but also if the rest of the world would do that. It would also depend if Snow Mountains would be able to provide that weight to their money.
When the federation formed after the fall of the Empire each nation had their own currencies and things were bad. The only nation that had a decent economy was the Diarchy of Equestria and they had to help the other nations rebuild. When the Hall of Friendship (the legislative body in Canterlot akin to a senate) was formed, they decided on a single unified currency to simplify trade.
They chose the Bit because it was the most powerful currency in the world. Equestria had the supremacy on value of it's goods. They sold more of what others wanted and that drew up the value of their goods through supply and demand, specially because other nations were rebuilding rather than competing. So economies became stronger, but Equestrian economy became stronger still and the Bits grew in value, which caused nations to trust Bits more than they trusted money from other nations, so they started accumulating Bits for their reserves. At some point is was just easier if everyone used Bits.
Bits are already a unified currency: before ponies decided they didn't want to be turned to popsicles and united into the Equestrian Republic, earth ponies used gold, unicorns used gems and pegasi used 'give me your money or say your rainfall bye-bye'. So, in the AU Bits come from the Republic and that was already a good reason other nations would use it anyways.
In the real world it's more complicated than that, but creatures want Bits, therefore Bits have value. This is similar to what happened to the US Dollar. The American economy, despite what some people like to say, is TRUSTED as the world's strongest economy, therefore, everyone wants dollars for reserves. Also, a unified world currency would not work in the real world because it would require governments to abolish their monetary polices, such as Japan's almost obsessive fight against inflation (which has problems on its own too), but it would also require economical powerhouses to tank the the debts of poorer nations.
In a fictional world, that is acceptable because nobody will care, but also because ponies (at least in the AU) are willing to take the hit and help others. Also, Celestia said so and as the time went on, the system found an equilibrium as nations found their niches to explore and the Royal House had taken responsibility for taxation and redistribution of wealth.
Though even then some nations would be economically weaker. The Crystal Empire is the typical tourism economy, probably Yakyakstan too, the Bufalo Nation and the Breezies are not even worth mentioning. In the AU Hippogriffia has a decent economy with sea products and tourism.
People reading Piece of Parchment know that the Changeling Swarm produces nothing other than magical medical knowledge and that Cadance has banked on crystals for magical components and metalized crystal (or crystalized metal) to boost their economy, but they're not that big. It is the Equestrian Heartland with Manehattan, Phillydelfia, Las Pegasus and other large cities and industries that make the world work, along with Griffonia, which is another heavily industrialized nation with a good international commerce balance. Especially once the nation is effectively reunified and Snow Mountains go back to participating in the nation's economy without hoarding all the iron and valuable metals in their mines, such as electrum. Also their game meat, which is valuable among omnivorous creatures worldwide.
Other than that, there are things of magical nature that don't apply to the real world, such the Crystal Heart that is important to the well-being of the whole world (even if the cartoon forgot that). Northerner griffons hold the line against the Windigos. Equestria's rulers are renowned as guardians of harmony. The entire world depends on pegasi and griffons for simply pushing clouds around. And then there are Celestia and Luna that monopolized the sun and the moon. Or more specifically, Luna and her dream powers and Celestia's unfathomable wisdom and experience. All of that influences.
Bottom line, the only problem in Griffonia are The Harpy pulling strings and the Griffonian government being so blatantly corrupt. But once it all settles down, supposedly with a victory for The Lion, Eagles would be an acceptable currency, especially if Celestia came out and said that it was fine. It could even have an artificial 1:1 rate to Bits and everything would be fine. Mostly because Celestia would just tell the Equestrian Central Bank to deal with it. Everything to avoid the Federation from breaking apart.
And if you read all this, here is a bonus: Celestia's reasoning would be that it would allow her to still ensure the wellbeing of the population. Even if the majority hated her, because the vulnerable ones would still benefit from the public education, healthcare and royal decrees such as the universal basic income.
Interesting thought there if victory came to the Lion and say Eagles became accepted with an "artificial" 1:1 ratio, what would stop them from taking advantage of that and just minting as many of them as possible? would that devalue the bit or would the banks "deal with it" as you said? I suppose they would only be able to do this to a limited extent
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The fact that it comes to a point where even ponies would tell Celestia that she's wrong and that their money isn't worth all that, especially if the griffons abused good will and minted too many coins. It's artificial 1:1 instead of a natural 1:1.2 or something of the sort, probably even less, because the griffonian economy is strong and the thing that would keep them from introducing a new coin would just be that it lacks the same confidence as the Bit.
It assumes that the griffonian money can compete with the Bit in the long term (which it can, because once the whole mess is resolved and things find a new balance, their resource gathering operations and industry is good enough to keep up.) It's like Celestia saying that The Lion can be their king. If she hadn't said that, no amount of blue blood he can conjure up would do. But, even then, after he's made king, he has to keep up with expectations.
If the griffons minted too many coins it would cause inflation. Basically too much money in circulation in relation to supply of goods causes money to lose acquisitive power.