"It's backed with silver! You can go to the government and trade out your paper for silver, which they keep in a big fortress somewhere, and so the paper's as good as the silver and much more convenient if you don't have bags that are bigger on the inside and lighter than their contents."

"- oh and they're Muggles so they can't just transfigure the paper, all right."

"Yeah. Now, we could transfigure the paper and go ask the Muggle government for the silver and give the silver to goblins, but you'd have to know how to navigate the Muggle government and they'd be suspicious of you if you tried to do it with very much."

"So it's not actually easy to turn in your paper for silver?"

"I think if you're an important Muggle it's easy and if you're a not important Muggle who still knows how to act around Muggles and can answer questions about where you got it it's pretty easy and if you're a wizard then it'd be pretty hard? But I haven't tried, it'd be stealing."

"I wasn't suggesting it."

"What does this have to do with goblins?"

"Anyway, other than having the government do it you can also just have a trusted issuer of the money who can detect fakes and make it unfakeable and manage the supply however-goblins-do-it, which is a secret - I'm bothered by that both because I like knowing things and because systems like this run on trust, they have to be predictable - and the advantage to that is that it doesn't end up being done by politicians -" he shudders - "and since everyone hates goblins they can't actually turn their immense power in the economy into generalized that. Also I think their approach is labor-intensive and it's hard to get wizards to do labor, so we couldn't really take it over from them very easily without inventing lots of new methods. The disadvantage is that if the government's sufficiently stupid and refuses to let the goblins enforce the rules against faking it, the whole system breaks down."

"Is that what the goblins rebel about?"

"Sometimes! Whenever the history books say things like 'the goblins wanted to carry out some terrible vengeance against some respectable member of society, and the Aurors stopped them', that's the thing that's going on. Sometimes it's other stuff. We're kind of horrible to goblins and it's really really stupid."

"So how come those respectable members of society haven't wrecked the economy?"

"Everyone's got most of their family wealth in goblin vaults!"

"But the Aurors stop the goblins from punishing people who fake money, people can pretty much just do that, right, why isn't that a huge disaster?"

"The Aurors don't always do that, it's happened occasionally and been a nightmare and maybe now they've learned their lesson though probably not, because people are stupid."

"When the goblins are having a rebellion why don't they just steal everybody's gold?"

"They sort of temporarily steal everyone's gold? You can't go get it from your vaults. Usually the settlement involves everyone getting their gold back, because everyone realizes it'd be a disaster if they didn't."

"Then why are we still stupidly horrible to goblins?"

"People are stupid worthless idiots."

"But why are they stupid worthless idiots this way instead of tickling dragons or something."

"They feel like the goblins are holding our economy hostage - which they sort of are, but only because we handed it to them and then made it clear we weren't going to protect their rights out of anything like decency -"

"...but that just makes it stupider to be awful to them."

"Well, that bit I get. If someone were holding my family hostage it'd be stupid to be awful to them but I'd probably do it anyway because I'd hate them and be bad at lying about that."

"Are the goblins upset when people just kind of hate them even if they don't do anything about hating them?"

"I'd be upset about that, wouldn't you? Also they do stuff, just indirect stuff, like not investigating if a goblin gets killed and so on."

"I'd be upset but probably I'd have other things on my mind than starting a war over it. But the not investigating if goblins get killed would explain it."