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As an aside: please give us some ability to change the name of a settlement as the game goes along. Some cost, DI, whatever. The players who name the settlements on founding and the players who control the settlements 2-5 years from now may have very different ideas on the town's direction.
In the real world, I live in a city that was originally named "Duwamps" in 1851. Its name was changed in 1853 to "Seattle." Name changes aren't uncommon.

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That's a good idea, using a DI cost. Much easier than having someone come raze your city so you can rebuild it under a new name. Perhaps not as much fun, but easier.
If that doesn't work out I have some barbarian friends who would be happy to help with the whole 'raze the city' plan.

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Like when St. Petersburg was renamed to... Petrograd... and then... oh. right nevermind.
They also changed to Leningrad before going back to St Petersburg :D
At a slower pace, there's also the case for Byzantium->Constantinople->Istanbul
Settlement name change should not be easy the more developed a settlement is (of course the barbarian method would decrease the cost). My rationale for this is that settlements should become geographical references, not the kind of stuff you want to change often.
Unless of course we want to ensure that cartography is a hot business around there.