A. The unity of issue was achieved in France in 1848, and at no time since then has there been any question, in responsible circles, of a possible return to plurality of issue. The same tendency is leading, little by little, to an absolute monopoly in England, Germany, and even in Italy. I think that it would also be interesting for you to examine the recent example of Switzerland, which had its note-issue system founded, as in America, on the plurality of banks and which has now substituted for this system one single privileged bank. This transformation has received popular approval by referendum.
Q. Does the export of gold reduce the volume of notes?
A. Not necessarily. It may happen that among our assets a certain fraction of the gold is replaced by an equal amount of bills in our portfolio, and that without changing the total of notes in circulation.
Q. There is nothing in the law requiring your notes to be covered by a certain proportion of gold?
A. No regulation of this kind exists in our legislation.
Q. Do you rely upon raising the rates of discount to stimulate the importation and to prevent the exportation of gold?
A. It is a principle consecrated by experience that the supreme means of defence for an issue bank, to protect its metallic reserve, is to raise the rate of discount, and we never lose sight of this principle. However, the extent of our reserves allows us to contemplate without emotion important variations of our metallic stock, and we only exceptionally have recourse to a measure which is always painful for commerce and industry. The stability and the moderation of the rate of discount are considered as precious advantages, which the French market owes to the organisation and traditional conduct of the Bank of France.
Q. Would you like to express an opinion as to why the Bank of France is able to hold its gold with a bank rate of 4 per cent. when the rates elsewhere are higher?
A. The causes of this phenomenon are multiple. Theory teaches us that capital goes where it can obtain the highest remuneration, but in considering this remuneration account must be taken of risks; these are numerous and of different kinds; I mean, of course, commercial risks; risk of losing on exchange when the capital is brought back, etc. This at once explains why it is possible in France to maintain a rate of discount lower than elsewhere. French capitalists might fear, perhaps, that the higher interest obtainable outside might be offset or more than offset by the risks incurred. Account must be taken, secondly, of the situation always held by France as a creditor nation, and which by the constant income of capital which it assures to us certainly contributes to counter-balance the current of exportation which might result from the lowering of the rate of discount.
Q. Does the Bank of France sometimes take steps to maintain the bank rate by the purchase of bills in the market or otherwise?