. .. Future of the- Franc
Finance
READERS-.of these coluirini will have noticed that, among the iiiffuehees restraining netiVitY tri. the Stock Markets, I have freqUently referred to the anxiety with regard to the future of French currency. At first sightit might perhaps seem strange that the. future of the franc should be a matter of concern to those outside France. As a matter of fact, however, the future of the franc is something which affects many countries, and not least our own. In the first place, the point cannot be too strongly empha- sised that, although in these days of economic nationalism each country appears to assume that its own welfare is the one thing that matters, there was never a time when it was more necessary that sOundconditions and prosperity should characterise not only one but all countries, if the sum of favourable world conditions is to be reached. In the second place, while no doubt the feeling of insecurity with regard to international peace is mainly responsible for a lack of confidence, uncertainties with regard to currency deVeloprnents have been - largely; responsible for the disttirhed monetary conditions all over the world and the constant flights of currency froth One country to another.
FLIGHT FROM THE FRANC.
For some few years unsettled political and currency conditions in France have been responsible for a great flight from the franc. Apprehensions both with regard to political, budgetary and currency conditions in that country have occasioned -a constant transference of French moneys either to this country for investment and safe custody or to the United States with the same object, and the result has been such a demand for gold and Bank of _England notes as to bring about an unprecedented hoarding of gold and notes on French account in this, and in other countries. Bank safes and the safes of Safe Deposit Companies in this . country ..are. probably overflowing with hoarded gold at the present time, while - the hoarding of Bank • notes on foreign account, and chiefly on French account, has found its- reflection in what is known as the Active Note Circulation of the Bank of England, which at the present time is about £37,000,000 over the total this time last year.
EXPECTATIONS OF DEVALUATION.
In recent weeks this flight from the franc has been accentuated by the advent of a Socialist Government in France coupled with expectations of an ininiediate devaluation of the franc together with Socialist measures of legislation calculated to disturb French capitalists still further and cause a continued flight from the franc. It was not until the end -of last week that the Socialist Government actually came into office, and during that week the weakness of the franc was especially pronounced -owink:tnr a:fairly general expectation that M: Blunt-- might deelare the Government's intention of an immediate devaluation of the franc. And here, for the benefit of those who may not see just why a -devaluation of the franc should cause such appre- hensions, may I offer a brief word .of explanation ? For some time past the Exchange between Paris and London has been_at the rate of-about :71. francs to the pound. Supposing, however, that the French Government had decided to devalue the franc en the new basis of, say, the equivalent of 98- francs to the pound, it is clear that any Frenchman holding sterling - would have been able to retransfer - his money to France at a considerable profit, though his readiness to do so would no doubt also depend upon whether, accompanying the devalua- tion, the new Government's policy was of a character calculated to inspire confidence and therefore keep the Exchange steady at its new level.
A TEMPORARY RALLY.
On Saturday. last, M. Blum declared the determination of. his Government not to effect any-immediate devalua- tion of the franc, and at first sight it may therefore appear strange that the effect was-to occasion a sharp (Continued on page 1112.)
Finance
(Continued from. page 111.1.) .
recovery in the franc as quoted in sterling. The reason for the recovery, however, _is easy to _explain._ The prolonged fall in the EXchange value of the franc was due to a steady flight of real holders of francs to transfer their possessions to other countries. In addition, how- ever, and especially during last week, when it was thought that devaluation Was imminent, speculators were also busy selling francs in the hope. of making a quick profit if devaluation took place. When, therefore, M. Blum's decision on that paint was announced, " bear operators hastened to close their commitments, with the result that a sharp rise in the franc took place. The practical question now, however, arises whether the currency crisis in France has passed and anxiety with regard to the future of the franc has been relieved.
M. BLUM'S POLICY.
I am afraid that this is far from being so, because although M. Blum declared against devaluation. his general policy as outlined last Saturday would seem to make for a fresh flight from the franc and there- fore for an ultimate devaluation. Immediately before last Saturday's meeting in the Chamber there was, as everyone knows, a serious strike movement proceeding in France, and right in the middle of the strike M. Blunt announced legislation conceding all the strikers' demands in the shape of shorter hours and higher pay. I ant not concerned here with the question whether the strikers' demands were just or whether from a political standpoint it was wise for the French Premier to concede them even while the strike was proceeding. The point that I Would emphasise is that the concessions to the strikers and to Labour are expected to raise working costs in France and also the cost of living, while the plans for large expenditure on public works must increase the difficulties of achieving an equilibrium in the Budget. In fact, they must create condition, calculated to bring about a further depreciation of the currency. Not only so, but certain changes are to be effected with regard to the Bank of France, bringing that Institution directly under the control of a Socialist Government. Whatever may be the actual results of this policy, it is scarcely surprising that there should be apprehensions that under the new order of things the Government's outlays may be met very largely bY borrowing, from the Central Institution, a course which in its turn seems likely to lead directly to inflation and therefore to a great rise in prices in -France. - • At the moment of writing there is already a setback in the value of the franc after the sudden—and I am afraid temporary—spurt on Monday. Moreover, there is always the fear that if France is ultimately driven off gold in- stead of adopting some carefully considered scheme of devaluation, there maybe such a slump in her currency as to bring about a still further disturbance in trade . conditions and possibly increase competition with our- (Continued on page 1114.)
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