"Gods, I must apologize for my previous lack of clarity," Aegon said, waving his hand. "Let's start over. I'll use a game to explain the feasibility and advantages of my plan. You know the Iron Bank, right?"
"Of course."
"How does it work?"
"It gathers the surplus money of the Braavosi residents and lends it to those in need," Tyrion replied, coming back to his senses. He added, "But it's different from you; it's managed by the rulers of Braavos, not an individual."
"Indeed, but we'll discuss the difference later. For now, let's understand how it works through role-playing." Aegon put away the two certificates on the table and took out a silver coin, placing it on the table in front of Tyrion. "I'm an ordinary citizen of Braavos, and you represent the Iron Bank. Now, several wealthy residents in our city have deposited ten thousand golden dragons with you."
The Dwarf looked at the silver coin in front of him, symbolizing ten thousand golden dragons. The expression of disapproval on his face relaxed. He was an easy-going person, but he wouldn't easily change his mind once he was set on something. He would never support anyone in committing fraud, not even friends he approved of. Because of this, he was even more curious about how Aegon planned to convince him.
Aegon's tone became serious. "I, this ordinary Braavosi, am planning to open a shop. After initial calculations, I believe I need about ten thousand golden dragons, but I don't have the money... So, I came to you and borrowed ten thousand golden dragons."
Aegon picked up the silver coin that had just been placed in front of Tyrion and moved it back to his side. The game began.
"Then, using these ten thousand golden dragons, I rented a shop, bought tools, and opened the business." Aegon placed the silver coin on the side of the table where no one was sitting, indicating that he had used up the ten thousand golden dragons. "Round one of the game ends. Up to this point, everything is easy to understand. I owe you ten thousand golden dragons, and you owe the people who deposited money with you—referred to as depositors—ten thousand golden dragons. Now, something interesting happens."
"Hmm?" Tyrion stared at Aegon, watching him pick up the silver coin that had been set aside to indicate it was spent and bring it back in front of himself. "What does this mean?"
"This is the biggest difference between Braavos and Westeros. In Braavos, people don't hide their surplus money at home; they deposit it into the Iron Bank. This small change is crucial in the game of money." Aegon couldn't help but smile, feeling he had come up with a good idea. "After I spent these ten thousand golden dragons, the people who earned them deposited the money with you again."
"Oh..." Tyrion seemed to realize something, but he still wasn't sure what was happening.
"Then, my startup plan ran into trouble. I realized that although I had opened the shop, I hadn't bought raw materials yet. I needed another ten thousand golden dragons, so I came to you again to borrow."
"But you haven't paid back the previous loan yet."
"Exactly, but if you don't lend me the money, I'll have to declare bankruptcy, and you can take the shop I've only half-opened." Aegon said with a grin. "But the premises are rented by me, and the things in my shop are useless to the Iron Bank. This means if you want me to repay, you can only continue lending me money, hoping my shop can open and make a profit."
"Isn't that being unreasonable?"
"No, this isn't being unreasonable; this is why Braavos is the strongest and wealthiest of all the Free Cities!" Aegon raised his voice and took the silver coin back to his side, placing it again on the unoccupied corner of the table. "Using the ten thousand golden dragons I borrowed from you again, I opened the shop and started operating. Do you see what's happening?"
"You've been moving this 'ten thousand golden dragons' around and opened a shop that costs twenty thousand golden dragons to start?"
"Exactly! With ten thousand golden dragons, I opened a shop that would normally require twenty thousand golden dragons. You will also be able to recover the principal and interest from the twenty thousand golden dragon loan in the future, and the wealthy people who deposited with you will ultimately earn interest on a twenty thousand golden dragon deposit. Everyone is happy!" Aegon asked Tyrion in return. "But how did this happen? Where did that extra ten thousand golden dragons come from?"
The Dwarf thought for a while before cautiously answering, "It's because I took a risk! While still owing others money, I lent their money to you, who hadn't paid back the previous loan!" Tyrion quickly remembered the unresolved issue from before. "This extra, non-existent ten thousand golden dragons is actually the manifestation of the risk I took!"
"Exactly, but back to your previous question. What if, when you lent me those ten thousand golden dragons, the people who deposited money with you—let's call them depositors—suddenly wanted to withdraw their funds?"
"The Iron Bank couldn't possibly have only ten thousand golden dragons."
"That's true," Aegon said, taking out another handful of silver coins and placing them in front of Tyrion. "Your vault has a lot of money, so if someone wants to withdraw ten thousand golden dragons, you just give him ten thousand golden dragons. But the problem now is that none of the money in your vault belongs to the Iron Bank itself. What if all the depositors demand to withdraw their money at the same time?"
Tyrion instantly remembered their previous conversation. The difference now was that the questioner was Aegon, sitting opposite him. "That's impossible, because that's precisely the situation the Iron Bank tries its best to avoid."
"How does it avoid this situation?"
How did it turn into Aegon asking and him answering? Tyrion realized he had been led into a trap. He understood that the other person had made him role-play as the Iron Bank precisely so he would think about this problem. However, he had always prided himself on being clever and enjoyed mind games, so he decided to accept the challenge.
After a few seconds of thought, he had the answer. "Interest and trust. Interest makes 'depositors' willing to deposit money, and trust in the Iron Bank's strength ensures that 'depositors' are never worried about not being able to withdraw their money when they want to. Therefore, unless they genuinely need the money, no one will withdraw it simply out of worry."
"Well said, but there's still a problem. What if the shop I opened doesn't make money?"
The Dwarf's eyebrows furrowed together. After a while, he finally sputtered out his answer, word by word, like a curse, "Then I wouldn't lend you any money! Before I issue a loan, I send employees to verify. If my employees think your shop will be difficult to make a profit from, then I won't lend you a single copper coin."
Tyrion's answer was even more accurate than the one Aegon had in mind. He truly was one of the cleverest people in Westeros, able to grasp the principle of risk assessment before lending so quickly. But that was fine. "So, now we can draw a conclusion. We can achieve something that would normally require twenty thousand golden dragons with only ten thousand golden dragons because, through a series of operations that seem complex but are actually simple in principle, we have virtually created a non-existent ten thousand golden dragons. And the reason we can do this is because you believe the shop I opened can make money, and your depositors also believe you can always repay their savings with principal and interest."
"Rather than saying this non-existent ten thousand golden dragons is the manifestation of the risk you took, it's better to say it's the manifestation of the 'trust' between the Iron Bank, the depositors, and the borrower. It is this trust and confidence in the future that allows the Braavosi to use limited money to build vast fleets and beautiful cities far beyond their financial capacity, becoming the youngest yet most wealthy and powerful of the nine Free Cities. Other trade cities subsequently imitated and established banks, but because they couldn't replicate the cultural atmosphere where Braavosi habitually deposit money into the Iron Bank when they have it, they were completely unable to compete with the Iron Bank in terms of capital."
Tyrion's head was spinning from Aegon's barrage of new terms and unheard-of rules. For the first time, he felt his brain wasn't sufficient. After thinking for a while, he admitted he couldn't find any flaws.
But Aegon wasn't finished. He decided to strike while the iron was hot. "Do you think our game is over?"
"Not yet?" The Dwarf looked up and met the gaze of his adventurer friend for a few seconds before realizing with a start, "Seven Gods! You... you want to keep borrowing money!?"
[T/N: If you've made it this far, then the story must be pretty compelling for you as it was for me. If you don't mind giving a few donations, you can do it via PayP@l to @margxsch. ([email protected]/margxsch) Thanks for reading!]