Banque De France

BANQUE DE FRANCE. The Banque de France owes its origin to Napoleon. It was founded on Feb. 13, 1800. It was based upon abortive negotiations to the same end which took place four years before, and was designed "to counteract the displace ment and dispersion of the funds serving to feed the trade of the nation, and all such influences as tended to impair the public credit and to clog the circulation of wealth in the country, influences arising from the French Revolution and from lengthy and expensive wars." In accordance with usual central banking practice, the Banque de France does not belong to the State but to private shareholders. It had a capital of 3o million francs on its foundation, and this was raised by degrees to 1821 millions, which has been the capital of the Bank since 1857. The control of the Bank is vested in 15 regents and three censeurs, who are elected by the shareholders, and in the Governor and two Deputy Governors who are appointed by the State. These 21 officials form the General Council of the Bank. The Governor and Deputy Governors are the normal executive officers of the Council and have full powers.

History and Policy, 1800-1914.

The history of the Banque de France from 1800 until 1914 was far less eventful than that of the Bank of England. It gained through being founded late enough for the principles of banking and currency to have reached a fairly advanced stage in their evolution, and so escaped most of the birth-pangs of the Bank of England. France, too, had more of the saving spirit and less of the speculative spirit than had England, and so the Bank was less exposed to recurrent crises arising from over-trading.

The Banque de France was not originally intended to be a central bank in the modern sense of the word nor to confine its operations to Paris. It opened three country branches in 1800, and though these were closed in 1817, further branches were opened again in 1835, while in 1848 nine country banks were absorbed and turned into branches. This policy of extending its activities into the country has been continued, and in 1927, besides its head office, the Bank possessed four Paris branches, 1S9 pro vincial branches and 94 auxiliary offices. Furthermore, it under takes collections of bills in 35o other towns, known as "villes attachees," with the result that it operates in 602 centres outside Paris.

Note Issue.

Nor did it originally possess a universal privilege of note issue. Originally its privilege only ran in those centres where it possessed branches, and it was only in 1848 that it was extended to cover the whole country. This right has been renewed from time to time, and at present is due to expire in The note issue in pre-war days was normally convertible. The Bank is not bound to carry any fixed proportion of metallic cover, but is forbidden to issue notes beyond a fixed upper limit (in 1914, 6,800 million francs) . On only three occasions has convertibility been suspended. The first was during the revolution of 1848, the second in the Franco-Prussian war of 1870, and the third in 1914.

These should be contrasted with the four suspensions of the Bank Act in England (see BANK OF ENGLAND, AND OF). The British crisis of 1847 coincided approximately with the French suspension of 1848. During the world-wide crisis of 1857, the Banque de France lost 25 million francs in gold to the United States, but for all that preserved convertibility. The British crisis of i866 left France unscathed, and indeed drove French money out of London back to France. In the minor British crises of 1838 and 1890, the Banque de France was able to come to the rescue of London.

Banking Functions.

The purely banking functions of the Banque de France are in some respects comparable with those of the Bank of England. Three important differences must be re membered. The first is that the Banque de France does not act mainly as a "bankers' bank.' The second is that the Paris money market is far less highly developed and so of far less international importance than is that of London. The third is that the cheque is in far less general use in France than in England. The Bank exercises control through the manipulation of its rate of discount (the upper limit of 6% to this rate was removed by the law of 1857), and by "open market" operations. It will only discount "three name" paper with three months or less to run and repre senting genuine commercial transactions, though in certain cases approved collateral (in merchandise or securities) can be substi tuted for the third name. It not only rediscounts for other banks but for the general public.

It may lend against Government, corporation or colonial stocks, Credit Foncier obligations, and railway stocks and debentures. For the rest, it conducts an "ordinary banking business," acts as the banker of the French Government, and is responsible for all work in connection with the issue and service of State loans. History Since 1914.—The war and the depreciation of the franc are a history in themselves. In 1914, the Bank had to take over 4,500 millions of commercial bills, and put them "into cold storage," as was done by the Bank of England in London. To protect the gold reserves, the convertibility of the note issue was suspended. Subsequently the Bank was called upon to make temporary advances to the State. These were drawn upon as granted and the proceeds paid, mainly in notes, to creditors of the Government. This caused an expansion in the note issue and the limit of 6,800 millions had to be raised.

In 1920, when it was possible to take stock, advances by the Bank to the State stood at 27,000 million francs, and notes in circulation at 37,600 millions. To rectify this position, the State agreed to repay 2,000 millions per annum. For a few years this programme was successfully carried into effect, and by the begin ning of 1923 the debt had been reduced to 23,300 millions. Un fortunately, the note circulation failed to contract, and at that date still stood at 37.40o millions. Also by then the national finances had broken down, and during 1923 only 200 millions was repaid to the Banque, while the note circulation rose to 39,100 millions or perilously near the then legal limit of 41,000 millions.

Little or no improvement was recorded in 1924, and in April, 1925, matters reached a crisis. The Governor of the Bank had to announce that the legal limits of 22,000 millions to State advances and 41,000 millions to the note issue had been exceeded. This caused the immediate downfall of the Government of the day, while to regularize the position of the Bank, the limits were extended to 38,500 and 58,50o millions.

The next stage in the post-war history of the Banque de France was the recommendations of the Currency Commission in the summer of 1926, followed by the entrance into power of a stable Government, and franc "stabilisation in fact." The Commission recommended inter alia that "The Banque de France must be in a position to remit fresh demands from the Government for loans, which would form the basis for fresh issues of paper money." After the adoption of this and other recommendations, the Bank was able to put its house in order. This was proved by its action in April, 1927, in repaying its war debt of £33,000,000 to the Bank of England, thereby recovering £ 18,000,00o in gold which had been lodged in London as collateral.

The recovery of the franc gave the Banque de France the command over large balances in foreign currencies. To reduce these to manageable proportions, in the summer of 1927 it began to buy gold in London, and rapidly upset the London money market. This contributed to a result whose future importance it was then impossible to gauge. In July of that year, an informal conference was held in the United States between the Governors of the Banque de France, Reichsbank, Bank of England and Reserve Bank of New York, directed towards closer co-operation between the central banks of the world. (N. E. C.) BANQUETTE, in military language, the place upon which men stand to fire over a parapet.