Developer Diary #22 – Loans and Debt

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King

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This feature began as a thought about an Event in Victoria; the French intervention in Mexico. Now, the event itself wasn’t all bad, it just had two intellectual problems: The French have the choice to intervene in Mexico in the 1860s to collect debts. We don’t let minor things like Mexico having no debts get in the way of this. Meanwhile, neighbouring Guatemala can go bankrupt as many times as it likes and the French are pretty cool about this. We also have the game play problem of conjuring money out of thin air, which felt a bit wrong. The final piece of the puzzle was the Victoria State bond system, where essentially the government got money for nothing because its people were rich. From all this we began to rethink the whole loan system.

Our goal is to try and capture two things; money should move around in a more sensible manner, and since countries did use the failure to pay debt as a pretext for war we want to have this in as well somehow. The concept of the national bank is born. Your country’s POPs deposit some of their cash reserves into a national bank that then lends money. If the national bank makes loans then the POPs will receive interest on the money.

So here is the basic system. When you need to borrow money you first go to your national bank and borrow money from your population, who will then receive interest on their debt based on how much money they have deposited in the bank. Essentially you can finance things like wars and industrial expansion by tapping your population for cash. This adds greater realism to the lending system; suddenly if you go bankrupt you don’t just lose money that magically appeared out of nowhere, you are going to impoverish your whole population. Secondly, borrowing money by the government removes money from the civilian economy, making for a balance between the two more important, because if a POP is short of money it will start to withdraw its cash reserves from the National Bank.

So far so good. However, what happens when your population just doesn’t have the money for you to borrow? Well, then you can start borrowing from other countries national banks. Essentially, there is an international debt market, where you can borrow money from richer countries who you then pay interest to. Hopefully they will then buy your goods to allow you to pay the debt, leaving the money flowing around the world.

The catch comes when you can’t pay all the interest on the loans; you then go into debt default. You start to not pay people based on the size of their fleet. The country with the smallest fleet is defaulted on first. (You will thus want a navy to protect your commercial interests.) If a country does not pay and has a coast you can send in the gun boats (unless you don’t have a fleet). This allows you to force a country to pay X amount of debt of every month of your loan. The amount is determined by your fleet size. As long as the country on the receiving end pays your demand you can do nothing to them. However, should they fail to respond to the persuasion that only your fleet can offer, then you get a justification for war. So, as Mexico, if you fail to keep your international creditors happy, 50,000 Frenchmen might pay you a visit.

The final question is what happens if you happen to be running your economy well, there is a sudden spike in expenses, leaving you needing to borrow and there is simply no money available for you to lend? Well, if your debt is high then bankruptcy beckons. Fortunately for those countries with low debts there is a shadowy cartel of international financiers with hidden goals who are always willing to lend a hand. Although we tried not to have money coming out of nowhere we felt that for the sake of good game play we needed to have this to keep things working.

In summery we are creating a debt market where credit is not unlimited and there are very direct game play consequences for not paying up.
 

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pingupower

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Great!

A dream becoming true. Finally no more infinite cash god knows where. That sounds like a pretty interesting feature.
 

JoeGiavani

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Is it easier to repay a loan than in Vicky 1 holding the button down for time...
 

Zuckergußgebäck

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Awesome! Will there be other instances of gunboat diplomacy (I am thinking of the Second Morocco crisis)? And do you just have to place your navy off the coast of the defaulting country in order to gain thye payments, or is there some additional thing you have to do?
 

King

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Awesome! Will there be other instances of gunboat diplomacy (I am thinking of the Second Morocco crisis)? And do you just have to place your navy off the coast of the defaulting country in order to gain thye payments, or is there some additional thing you have to do?

This is the only use for the gun boat diplomacy at the moment. The fleet doesn't have to stay put. Once it has bombarded it can go home.
 

Jolt

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Nice! So what happens when you default? The debt immediatly disapears from the game? And if not, what if your creditor declares war on you and you manage to resist? Then does your debt disapear from the game?
 

Balesir

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Very nice! This should Greece the wheels of commerce (sorry!) :D

How about the possibility of finance with political strings/demands attached? That would make for an "interesting" lender of last resort...
 

King

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Nice! So what happens when you default? The debt immediatly disapears from the game? And if not, what if your creditor declares war on you and you manage to resist? Then does your debt disapear from the game?

if you default you debt is still there you just aren't paying the interest.
 

Zuckergußgebäck

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This is the only use for the gun boat diplomacy at the moment. The fleet doesn't have to stay put. Once it has bombarded it can go home.

So it's more a case of sending your navy to their coast in the hope that they stop defaulting, and then withdraw it again? Cool. (I'd still like to see some other instances of gunboat diplomacy, but I'm not going to bitch about it) :)
 

King

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So it's more a case of sending your navy to their coast in the hope that they stop defaulting, and then withdraw it again? Cool. (I'd still like to see some other instances of gunboat diplomacy, but I'm not going to bitch about it) :)

No, when they default you can send in the ships to force a repayment plan on them.
 

Weijun

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This is a great feature. The economy should be considerably more realistic as a result. the more I read these dev diaries, the harder it it gets to wait until summer.

Are there any additional factors to a nation's domestic credit limit other than the people's total cash reserves? Do the game mechanics simulate Jackson killing the Second Bank of the United States (or similar national banks for other countries) or massive bank failure in the depression of 1837?
 

King

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This is a great feature. The economy should be considerably more realistic as a result. the more I read these dev diaries, the harder it it gets to wait until summer.

Are there any additional factors to a nation's domestic credit limit other than the people's total cash reserves? Do the game mechanics simulate Jackson killing the Second Bank of the United States (or similar national banks for other countries) or massive bank failure in the depression of 1837?

No
 

JoeGiavani

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How are interest rates handled? Seems pretty important with loans.
 

Earl Uhtred

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Very interesting. I look forward to stitching up poor minors with unsustainable debts :)

What about landlocked countries?
 

telesien

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Interesting feature.
It would probably lead to strange results like f.e. Switzerland defaulting Austria because they don't have strong navy, but I can live with that. It is only a small price to pay for navy having some kind of diplomatic effect and very cool system of loans. Keep up the good work!
 

telesien

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the_hdk

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sounds impressive and I like the gold simulation.

it has been asked before but how will interest work? :)
 

Snaake

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Is it easier to repay a loan than in Vicky 1 holding the button down for time...

It wasn't even holding down, it was repeatedly clicking, at least in Vicky. So will there be a dialogue window "pay off £xxxx"?


And tech was how interest rates worked in Vicky too, it was a reasonable abstraction.

edit: Also, France might want to look into some armaments industry in the screenshot, coal is their #3 produced good, and they're exporting sulfur...

I'm a bit disappointed by how the budget window takes up the whole screen again, when the last DD showed us an event window that didn't... I hope it'll be different on release. As I've stated, I like to play with higher than default res if it's at all possible, so also hoping for this... King, you said elsewhere you were still tweaking the interface, so that was my 2 cents.
 
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