I've recently had a few ideas on the implementation of Diplomatic Capital and I would like to share my thoughts. Feel free to comment and add your own ideas.
Firstly, having DC being generated like any other resource causes it to accumulate in fairly large quantities. This doesn't really fit well since it's a concept, something intangible, not a resource. It should be a reflection of the status of a faction and it's relation to other factions, and therefore shouldn't be generated by the way it is now.
This is how I see an alternate implementation of Diplomatic Capital.
Embassies should generate DC, but shouldn't be buildable in your own cities by yourself. Instead, an embassy should be built in a city owned by another faction, after a certain treaty is signed between the two, similar to trade agreement or a research agreement. Now, the faction(let's call it faction 1) that builds the embassy will gain 1 DC per season while the faction(faction 2) that owns the city will gain the that gildar Faction 1 pays for the normal maintenance cost of the building. This way everyone gets something in return. Also, there's a limit of 1 embassy per city. I'm actually thinking of an even stricter limit at a faction level, like 3 per faction. The idea is to reduce the quantity of DC that is generated out of thin air.
Embassies wouldn't represent the bulk production of DC, just the slow trickle that helps nudge along relations between factions. I would suggest individual DC counters with each faction, but that may be a little too complicated.
The main source of DC would be diplomatic actions. Things such as respecting a treaty and going to war against the foe of an ally. Gifting units or resources to another faction. I've actually noticed the AI doesn't really take gifts into account, which is a bit sad, since I could always soften up someone by showering them with gifts before making an offer in Master of Magic. They used to actually mention what gift I gave them that made convinced them to accept. Royal weddings could boost diplomatic capital, hitting certain milestones for treaties, such as a 10 year mark could generate DC. The idea is actually make the player and the AI to work for that DC.
There's also the possibility of having the rating of a nation influence DC by some amount. But not just military rating. I can't seem to remember if there's any sort of culture rating in Elemental, if there is, a percentage of it, combined with the military rating could factor into the value of DC. Not adding to it's quantity, since it wouldn't make sense, but rather slightly increasing it's perceived value. Like a multiplier. It would really be great if that multiplier scaled in comparison to other nations. Such as it would be hardly noticeable when dealing with factions of equal power, possibly between 0.1 and 0.99 when dealing with larger more powerful nations, and higher when dealing with insignificant factions.
I hope my idea isn't too convoluted to understand. The basis is that DC is too easily obtained and can become worthless in the long run.