The Wavering Franc

Southland Times, Issue 23142, 8 March 1937, Page 6

The Wavering Franc

Saturday’s cables on the monetary situation in France pointed [to the rapid approach of a financial crisis which has been I looming for some months past. The correspondents of The Daily Telegraph and The Times agreed that stabilization and devaluation will occur, but differed on the nature of the measures likely to be taken by the French Cabinet in its attempt to overcome the present shortage of capital. During the week-end, however, the situation has crystallized ’’with a completeness that suggests a. long preliminary planning by Ministers and financiers. A certain amount of exaggeration and excitement — the inevitable gesturing of French politics—can be disregarded. The President was to broadcast a “solemn appeal to the nation” for support of the defence loan; but now the speech has been postponed—perhaps for ever. A committee of banking experts has been appointed to control the exchange fund; yet the announcement that M. Charles Rist, honorary director of the Bank of France, is to be at the head of the committee, has had the unwanted effect of stimulating sales of French currency. Among these hesitations and paradoxes are certain facts which must not be ignored. The proposed defence loan is important, not only for its ostensible purpose —which merely brings France into line with the arming nations —but because it is clear that the loan is to be used as a supreme measure for uncovering hidden gold and restoring capital that has been taken out of the country. Various inducements are being offered to investors. There is to be a guarantee that holders in gold will be compensated for every decline in the value of the franc, and—still more significant—the loan is to be issued in francs, pounds and dollars. In its wider view the present position can be regarded as a natural result of the breaking of the gold bloc. France abandoned the gold standard after many hesitations, and amid the outcries of an alarmed people. The tripartite agreement of last October was partly a means of providing support to M. Blum in a difficult time, and to that extent it was successful. Since then France has come into the rhythm of world recovery: improving trade and industrial expansion have justified the measure. But the adjustment of currency and trade on a new level of values cannot be attained without pauses and difficulties; and in France the process was made complex by the demands of labour, newly organized, and by the threat of obstruction from the right. The dangers implicit in foreign affairs have delayed opposition; but now that Europe is uneasily digesting the fact of British armament on an unparallelled scale, the time seems to be opportune for testing the real strength of M. Blum’s position in France. In his New Year speech, the Prime Minister took pains to emphasize the national character of his Government, making what was described by a correspondent of The Economist as “an appeal for the collaboration of capital.” At the same time the amnesty guaranteed to internal hoarders of gold was extended to hoarders in foreign countries and to holders of foreign currency. Apparently this measure was not successful, for the new proposals will be aimed at reassuring those who have transferred capital abroad, and at bringing back the bulk of this capital to France. It is quite possible that these new measures will be ineffective. If the capitalists continue to stand aloof, there is bound to be a political crisis, and the Popular Front will be unable to continue in office. But if this is the aim of the capitalist groups, they will be faced with the problem of replacing M. Blum. They are quite aware that the Prime Minister has the support of the country, and that their own men could not form a Government with any reasonable chance of survival. The crisis, therefore, threatens to be another of those internal struggles which are somewhat laboriously preparing the shape of things to come in the politics of France. Saturday’s message to the effect that the British Government has no intention of interfering can be accepted in support of this view of the problem as essentially domestic. London and New York have probably been expecting the latest development; political and financial circles have known for some time that the franc might have to be depressed to the lowest gold point provided by the law of last October. The gold content of the franc was fixed then between 43 and 49 milligrams, and has been maintained since then at a mean between these two points. Devaluation may be merely nominal. If it were too drastic there would be an immediate interruption in the upward movement of trade and industry, and the aim of the Government is probably to gain sufficient time for removing the stringency of the capital market. Everything will depend, therefore, on the response to the new defence loan and on the skill with which M. Blum and his colleagues handle the ingenious measures they are putting forward to meet a difficult position.