Well, your documents do change several times a day, as the save folder for XIV is located in your documents folder, so technically, yes, they do
I have mine set to backup any changes to both google drive and a separate hard disk on my pc, as well as having them moved to my laptop every so often just in case something messes up. I'd wager that saving character data to the server would break the game if you change things multiple times in a few seconds on thousands of characters. Hence why we are limited on inventory expansion. You are looking at it the wrong way. Most games DO in fact save your game locally. The servers in this instance, are only keeping track of the things the server absolutely needs to, while the rest is saved locally.
And hey, you have a backup. Thats great, now you dont need to start from scratch like you were complaining.
And honestly, being a retired software engineer doesn't mean that much as these limitations are generally based on hardware configs. I've had software engineers ask me why I needed to turn off the server to replace pci HBAs before lol....
The limitations here are most likely backend disk write bandwidth for backups of every character online. Depending on the servers they are using, unless it's all pcie flash, or SAS flash, constant writes to even 10k or 15k SAS hdds will have a limit on what they can stably achieve. And going past that causes instability or possible backup failures, which could cause character data corruption, which would be bad.