Chapter VIII The Bankque de France during the War

CHAPTER VIII The Banque de France during the War At various points in the foregoing chapters· reference has been made to the part played by the Banque de France in the financial drama of the war. It may be well at this point, however, to summarize some of these points and to deal with the matter somewhat systematically. The Banque de France has played a great and heroic role. Such criticisms as maybe justly made of its policy are also criti cisms of the state and of long standing French financial tradi tion. The Banque has been both prudent and courageous. It has been above all patriotic. It has been statesmanlike, conceiv ing its task to be to lead in the financial and industrial readjust ment which France has had to make. It has been obliged to carry an unexpected burden because of the weakness and timid ity of the great private banks of France and because of the inability of the state to put through a taxing policy of sufficient vigor. But it has borne this burden and it continues to be a strong and solvent institution capable of bearing even heavier burdens if need be.

The gold policy of the Banque has been one which from the standpoint of English banking traditions is not courageous. Before the war the Banque had accumulated an enormous re serve, amounting on July 30, 1914, to 4,767,000,000 francs. Of this 700,000,000 was in legal tender silver and the rest, 4,067, 000,000, was in gold. One wonders for what purpose this huge accumulation, amounting to more than half the total assets of the Banque and amounting to a very high percentage of its chief liability, its circulating notes, was made, if not to be used for keeping its notes convertible in an emergency. The Bank of England with very much less gold has conceived it to be its duty to go to the limit in meeting its gold obligations and although 105 106 EFFECTS OF THE WAR ON ¥ONEY, CREDIT AND BANKING forced to exercise control over external shipments of gold has apparently never refused to meet lawful calls for gold over its counter. The Banque de France, however, following what seems to be not only the French but the general continental tradition, promptly suspended gold payments at the outbreak of the war and has since hoarded its gold jealously, though from time to time sending gold abroad, as a last resort and under special restrictions, to protect the foreign exchanges. Early in the war, however, the Banque released. 350,000,000 francs of its silver and it has since released a little more. Its silver holdings in August, 1918, had been reduced from 700,000,000 to 319, 000,000 francs.

Early in the war, also, a movement was inaugurated, in which Raphael-Georges Levy took an active part, for bringing in the gold hoarded by the people to the Banque in exchange for the Banque's notes. Levy estimated in 1915 that something like 3,000,000,000 francs of gold were in circulation among the people at the outbreak of the war. The response to the call for gold to strengthen the Banque's reserves was enthusiastic and a very large amount of gold was brought in. By August 10, 1915, 315,000,000 francs in gold had been brought in by the people and by September 28, 1915, the total had reached 800,000,000. 1 By D'ecember 8, 1915, 1,204,000,000 francs had been brought in by the people. By December 18, 1916, the figure had grown to 1,948,000,000. 2 The Banque, suspending gold payments within the country, has sent a good deal of gold abroad, but only wlhen the exchange situation became acute. In May, 1915, 500,000,000 francs of gold was exported to England under an agreement by which 1,550,009,000 francs in credit was obtained in England and the United States to be used in protecting French exchange. 3 The Banque retained title to this gold, and continued to count it as part of its reserve. In the first quarter of 1916 more was sent out and throughout the war from time to time the Banque has released gold, no small part of which ha.s come to the United 1 London Economist, August 14, 1915; October 2, 1915, page 508.

2 Ibid., December 23, 1916, page 1176. 8 Ibid., May 15, 1915, page 937.

FRANCE 107 States. This gold is still counted, however, in large part at least, as part of reserve of the Banque, though separately men tioned in the statements of the Banque since June 8, 1916, as "gold held abroad." On June 8, 1916, the reserve stood: silver, 350,000,000; gold in vaults, 4,676,000,000; gold abroad, 69,000,000. On August 22, 1918, the Banque's reserves stood as follows: silver, 319,000,000; and gold, 5,435,000,000, of which 3,398,000,000 was held in the Banque's vaults and 2,037,000,000 was held abroad. It is not clear that either the French Government or the Banque is disposed to give thorough going acceptance to the theory that gold should be hoarded in war time. Perhaps the theory itself is too vague a theory for public men to be enthu siastic about giving explicit statement to it. It rests in part upon the notion that a large gold reserve, even though it be hoarded, is a basis for popular confidence which helps to sustain the value of circulating notes and which increases the general credit of the state. This consideration is not without force.

Confidence based on the existence of a large 'hoard of gold is to a considerable degree nonrational, but very many of the forces which make for value are nonrational. The notes of the Banque de France have a higher value than they would have if it were not for the Banque's reserve, even though a lower value than they would have if they were being redeemed on demand in gold. The decision to put an embargo on gold was one to which Ribot gave hesitant assent. Ribot concluded his statement upon this point with a panegyric on free trade. 1 He appears to be an adherent of the English doctrine with reference to the handling of gold reserves-the doctrine that gold reserves are to be used rather than hoarde~; that they are accumulated in tranquil times precisely for the meeting of emergencies. He appeared also to feel that the emergency was so great that even the huge hoard which France had accumulated was inadequate and that it was better to conserve it than to use it ineffectively.

The annual report of the Banque de France at the beginning of 1916 discussed the matter also. The Governor states that it 1 London Economist, July 17, 1915, page 98.

108 EFFECTS OF THE WARON MONEY, CREDIT AND BANKING seems not wise to use the gold reserve freely to protect the foreign exchanges. He suggests, but does not state that the effect would be insufficient. There may have also been in the minds of statesmen and financiers, not only in France but in Germany as well, the thought that the huge gold accumulations might serve for some thing more than a fetish for the people to look at and draw comfort from~ They may have looked forward to a time when credit resources would be exhausted and when actual gold in hand would be the only 'means of obtaining goods from neutral countries, the time when the country with the largest gold accumulation would have the necessary supplies in the final week of the war. No doubt, too, all of the gold hoarding financiers have had an eye to the advantage of a huge gold accumulation in the after the war period as a means of aiding in a resumption of the gold standard.