BANK OF FRANCE

Dominion, Volume 30, Issue 64, 9 December 1936, Page 16

BANK OF FRANCE

Reforms of M. Blum POWERS GRANTED TO GOVERNMENT Just as Napoleon the First organised it, in 1803, 1806, and 1808, the Bank of France remained unchanged until the present time, says “Pertinax,” the wellknown French commentator, in the “Daily Telegraph,” London. Its statute has now been.altered by the Act of Parliament promulgated on July 24, and the French Government has been empowered to carry out, by decrees, before the end of the year, additional amendments. Thus Is being put in force one of the main reforms inscribed in the programme of the ‘-Popular Front”: To make of the Bank of France the Bank of (he French nation. During the electoral campaign, that widely-used slogan was intended to suggest that, so far, the central blink of the republic had been nothing but the tool of a narrow and self-seeking oligarchy, and that, in future, it would have to be freed from the control of the few and made the servant of all. Is it possible to justify those highsounding words? Hardly. Regents Superseded. It is true that, under the old statute, the 200 biggest shareholders formed the “general assembly” of the bank, to the exelusion of the others, and that the 15 “regents” or directors behaved as a close corporation and, in practice, filled between themselves any vacancy that might occur without troubling to consult the larger body. It is true that a caste composed of the heads of the oldest private banks and industries had thus gradually been brought into being. The law that was lately passed undoubtedly puts an end to that state of affairs. Henceforward, all the shareholders, great and small, will be given access to the general assembly, and the general council which takes the place of the council of the regents is to consist of 15 men (out of a total of 20) who, directly or indirectly, will depend upon the Minister of Finance, or upon his colleagues in the Cabinet —a proportion of Government nominees more than sufficient to break any sectional interest. But it must never be overlooked that, in that respect, the reform lends itself to a good deal of criticism since it is essential that a bank of issue should be capable of withstanding the pressure of any Ministry that happens to tamper with the currency for purposes of its own. Obviously, officials and representatives of the spending departments are not well fitted to resist pressure: from above. Governor’s Hole. At the same time, two points must be kept in mind. First, under the new regime, as well as under the old, the Governor of the Bank is the nominee of the Government and, indeed, nearly omnipotent. This is a factor that considerably weakens the charges levelled in the past and, to an equal degree, must damp the hopes entertained for the future. As was the case yesterday, an energetic governor endowed with a will of his own, will be able, to-morrow, to hold the Cabinet in check whenever the Cabinet wishes to embark upon hazardous schemes, and, similarly a feeble governor will be ready to surrender to-morrow as he was wont to do yesterday. Secondly, it would be a matter of surprise if the general council manages to counterbalance the governor more effectively than the regents who have just disappeared. In the last 15 years the regents have nearly always backed the governor whatever ideas he tried to enforce, and, from one governor to another, those ideas were as contradictory as can be imagined. The successors of the regents, the general councillors, will probably not be found less docile. Among them “inspectors of finances” (the French equivalent of the officials of the Treasury) are likely to be fairly numerous as Government nominees. They possess or are supposed to possess an expert knowledge of the mysteries of the currency, but they have a way of thinking collectively and, more often than not, the governor will be found from their ranks. For him they will not be a cause of trouble unless they are compelled to act under strict instructions from the Cabinet. Big Innovation. Does this imply that the law of July 24 does not really introduce anything new ? It does initiate reforms, but on a different plane. In chap. 3, article 12, of the new Act, it' is stated that the bank will be under the obligation to rediscount, without any limitation as to the amount, bonds issued by the French Treasury and redeemable after three mouths, provided that the application does not come directly from the Treasury itself. Hitherto, it has been left to the discretion of the bank to grant or to refuse such a rediscount. The bank made it a rule not to grant it as a matter of course, because it thought it wise to impress the Government of the daj- with the necessity of inspiring confidence among the general public. Now, whatever it 'does, the Government will always feel sure of being able to raise funds on short term at will, since the lenders (bankers or private individuals) will be at any moment in a position to get back their advances from the bank. The discipline enforced upon all Governments by the necessity to safeguard the currency, to let it rest upon a sound foundation, will not apply so efficiently as under the old regime, even with a governor who knows his business and is a man of character. That restraining influence, to say the least, will be on the wane. A wise Cabinet will be careful to limit its demands upon the bank, but it will be a self-imposed discipline which any demagogic administration will be able to discard whenever it likes. The restriction will not come from the outside. Currency Policy. When Article 12 was drafted and pressed upon the acceptance of Parliament, the French Government had set itself against the devaluation of the currency—the only practical means of relieving the burden of debtors (and the State is the greatest debtor of all), of readjusting costs and prices, and of re-establishing a margin of profits for producers. It was about to follow the same course as totalitarian Germany and totalitarian Italy. In those countries, the distribution of credit, the exchanges of goods and services are regulated by public authority. Dr. Schacht, president of the Reicbsbank, is, for example, merely

the servant of the dictatorship. Such are the essential requirements of a “closed economy” and, as the expression goes, of an autarchy. Through Article 12 M. Blum and his colleagues went down that slope.

I do not believe tor one minute that the French people would have submitted to the unavoidable results of such a process, monetary or credit inflation, the ruin of the currency and, ultimately, the loss of political freedom. But all the straws were blown in that direction.

In September the rapid depletion of the gold reserves (they fled in massive figures) and the sudden realisation by the Government that what was left of them would be barely sufficient to pay for the national defence of France in war time, since no borrowing abroad would probably prove possible, suddenly reversed the whole policy that had been followed hitherto. An embargo was placed upon gold exports. The gold content of the currency was cut down. France’s monetary and economic system was, at one single stroke, diverted from the imitation of the German and of the Italian models, and it is now’ being realigned upon British and American formulas. A great revolution, indeed, but in a conservative sense. M. Blum once said: “If the currency had been devalued in 1935 there would not have been any Popular Front Government in 1936.” Loans to the State. In the forthcoming weeks, unless political and social disturbances should check the natural inflow of capital from its foreign shelters, there will bo a return to health of the economic body. But, in order to make it a lasting one, an' efficient management of the bank of issue will be required and, in that respect, Article 12, as well as the practice resorted to last July of compelling the Bank to make direct loans to the State, may prove very dangerous. Toward Governmental power the bank ought to enjoy the same amount of independence or autonomy which the judiciary now possesses. In short, the reform of July 24 calls for some drastic amendment. But no satisfactory result will ever be achieved until a really competent personality has been appointed to the governorship. It cannot be denied that two of the bank's governors, M. Robineau (19201926) and M. Tannery, who was appointed in January, 1935, and dismissed after the victory of the Popular Front, were unequal to their task. M. Robineau misled M. Poincare, his old schoolmate, in 1923-24. when he induced him to believe that the gold franc of 1914 could be reinstated, and M. Tannery fed with all his might the popular prejudice against devaluation, inducing the Press to describe in distorted terms the British, American and Belgian monetary experiments. Under M. Tannery the bank, in violation of its statute, advanced directly to the State more than 15 milliards of francs as though the article 12 of today had already been in existence. It is odd to have to record that now the Cabinet of the Popular Front would extend and regularise the worst practice of its predecessors. The errors of yesterday have bred the errors of today. Cabinet’s Nominee. The nominee of the Blum Cabinet, M. Emile Labeyrie, is of a different type. He. has a good administrative record—he spent his life in the “Cour des Comptes.” the judicial body which, in France, fulfils the part played in England by the audit department. But he is entirely ignorant of the new task that has been thrown upon him. “I am not interested in the monetary problem,” he was heard to remark a short while ago. There are several financial experts of wide repute who belong to the Left. It makes one feel uneasy to think that he was given preference, over them because, last spring, they stood for devaluation and, probably, for a more independent Bank of France. It is commonly believed that the directing mind in the bank is not the titular holder of the post, but the chief official of the Treasury. Thus, two functions are mixed up together which ought to be severely kept apart. The true reform and the true governor of the Bank •of France are still to come.