The Bank of France
[165]The Bank of France was established in the year 1800, and was at first an entirely private concern, with a capital of $6,000,000. Among the first subscribers were Napoleon Bonaparte, Hortense Beauharnais, and bearers of names which are still prominent in the French banking world, such as Mallet, Hottinguer, Seillers, etc.
At that time, the privilege of issuing notes was not confined to a single bank. But in 1806 the Bank of France was placed under state control, and, by and by, the other issuing banks disappeared, by amalgamation or otherwise, and the Bank of France became, and has ever remained since, the only issuing bank in Continental France.
The present capital is $36,500,000, all paid, divided in $200 shares.... [Francs are given in terms of dollars.]
These shares are held by the public, the average being about 5-1/2 shares for each shareholder. One-third of the shares are held by persons possessing only one share. They are dealt in freely in the market, their quotation being at present about 465 per cent.
The profits go to the shareholders, as in every other company. In 1912 the bank earned a net profit of $8,200,000. The last yearly dividend was paid at the rate of 20.83 per cent....
The governor of the Bank of France and the two sub-governors are appointed by the State. They are assisted by fifteen regents, nominated by the meeting of the shareholders. The same meeting appoints three censors whom you would call auditors.
The board, composed of the governors and regents, decides all questions concerning the rate of discount on loans, the issue of notes, etc.
Three of the regents, assisted by twelve shareholders chosen from amongst the prominent members of the commercial and industrial profession, compose the "discount committee," which meets at least three times a week and decides upon the acceptance or refusal of the bills presented for discount....
The notes are ... legal tender, but, of course, may be exchanged, at sight, against cash—I don't say against gold, as I will explain presently.
The denominations circulating at present are $10, $20, $100, and $200. One dollar and $4 notes were issued at critical times, but have been withdrawn since. In case of need, they would be resorted to again, and in this respect I should like to mention the fact, demonstrated by experience, that even where the circulation is already sufficient, a supplementary issue of small notes—unless, of course, the amount be too unreasonable—is much less likely to depreciate the currency than an issue of larger ones. In a certain sense, we may consider that a country which refrains from issuing small notes in normal times, possesses ipso facto a valuable reserve in case of emergency....
I need not recall the remarkable rôle played by the Bank of France, under the leadership of its very distinguished governor, M. Pallain, during critical periods such as 1907, when that institution succeeded in keeping the French discount rate on an exceptionally moderate level, while giving valuable and effective aid, at the same time, to the London market.
How is this successful policy of the Bank of France materially possible? Precisely because it has the option to pay in silver as well as in gold. When the situation is such that withdrawals of yellow metal are to be feared, the bank quotes a premium on gold. At present, for instance, the quotation is about one-tenth of one per cent. premium, that is to say, you will only get $999 in gold against $1,000 in notes. If you want to get $1,000 cash, you can get them, but in silver.
As a consequence, there is no necessity to raise the discount rate in order to protect the gold reserve, and French commerce has the privilege of benefiting, as a rule, by the lowest rate of discount in the world. Thus the average bank rate, in 1912, was 3.37 per cent. in France, as against 3.77 per cent. in England, and 4.95 per cent. in Germany.
If we consider a period of fifteen years, from 1898 to 1912, the average rates are:
| per cent. | |
| France | 3.8 |
| Holland | 3.52 |
| England | 3.62 |
| Belgium | 3.65 |
| Switzerland | 4.14 |
| Austria | 4.22 |
| Germany | 4.50 |
CASH HOLDINGS OF THE BANK OF FRANCE
[166]The undeniable characteristic of our present currency system is that it presents a transition between the money system and the clearing system, the ultimate form of which we are unable accurately to define. This period of transition, which began when the idea of genuine credit was conceived, will last for centuries before we can rid ourselves of money as a medium. The system of purely fiduciary currency, which is in process of becoming firmly established, is not yet sufficiently stable to prevent us from being thrust rudely back into the old ways whenever we exceed the limits of our resources.
Crises afford a striking proof of this fact. The initial period, the precursor of the crisis, is nothing but an abnormal extension of credit and of speculation. At such times the need of leaning upon the solid foundation of metallic currency is felt with a new intensity; and when, with a blindness resulting from overconfidence, this need has been neglected, when, from a disregard of the functions of money, a crisis is brought about by the violent rupture of the equilibrium of credit, gold at once resumes its rights, is sought for on all sides, and, according to the seriousness of the offence, exacts complete amends, with the honors of a premium as high as it may choose to make.
It clearly appears, therefore, that this quest for simplification in the means of credit, which each nation ardently pursues in the interest of its own industrial and commercial development, demands the greatest circumspection. In developing credit, metallic currency must not be too much overlooked. We must not lose sight of the fact that "credit, in order to be solid and permanent, must have a solid and permanent foundation."
The first care of the architect who is about to erect a great building is to secure for it a broad and firm foundation. Likewise, in the vast and continuous upbuilding of a nation's credit, the metallic base requires the most attentive and enlightened consideration. To provide for it, the entire resources of the State are not too great. It is difficult to understand how, in certain countries, an undertaking of such universal interest should be left to private enterprise. How can the latter be powerful enough to accumulate holdings in currency which may have to remain idle for long periods, and which can unflinchingly resist all assaults and all storms?
In France a system which has already passed the hundred-year mark and has been particularly fortunate as to results, intrusts the Bank of France with the duty of building up and preserving the metal holdings, and this great organisation shows itself fully worthy of the confidence which the Government has always reposed in it. During its long career the bank has never ceased to control credit with rare foresight and a remarkably steady hand.
From 1870 up to the present time the cash holdings of the Bank of France have not ceased to grow. But the bank, of its own volition, could not have made such an accumulation. The exchanges are usually in our favor, owing to our position as lenders to foreign countries and to the extent of our exports, and this for many years past has resulted in the continual flowing of the precious metal into the vaults of the Bank of France.
In thirty-five years the amount of our metallic reserves has increased almost threefold. And it is worthy of note that while the amount of circulation increases together with that of discounts, loans, and current accounts, the fact is nevertheless established that the bank note tends to be more and more exclusively represented by cash holdings. The silver holdings are continually diminishing, while the total holdings have increased. Indeed, the Bank of France avails itself of every opportunity to relieve its coffers of this depreciated currency. Since 1898 a considerable portion of the holdings have been absorbed by the recoinage of a certain number of 5-franc pieces into subsidiary coins.