Question

what is the evolution and nature of central banking in France?

Answer 1

The Bank of France known in French as the Banque de France, headquartered in Paris, is the central bank of France.It is an independent institution, member of the Eurosystem since 1999. Its three main missions, as defined by its statuses, are to drive the French monetary strategy, ensure financial stability and provide services to households, small and medium businesses and the French state.

The Kingdom of France's first experiment with a central bank was the Banque générale (Banque Générale Privée or "General Private Bank"), set up by John Law at the behest of the Duke of Orléans after the death of Louis XIV. It was meant to stimulate France's stagnant economy and pay down its staggering national debt acquired from Louis XIV's wars, including the War of the Spanish Succession. It was nationalized in December 1718 at Law's request and formally renamed the Banque royale a month later. It saw great initial success, increasing industry 60% in two years, but Law's mercantilist policies saw him seek to establish large monopolies, leading to the Mississippi Bubble.

The collapse of the Mississippi Company and the Banque Royale tarnished the word banque ("bank") so much that France abandoned central banking for almost a century, possibly precipitating Louis XVI's economic crisis and the French Revolution. Later successors like la Caisse d'escompte (from 1776 to 1793) and la Caisse d'escompte du commerce (from 1797 to 1803) used the word "caisse" instead, until Napoleon retook the term with la Banque de France ("Bank of France") in 1800.

In 1800, financial power in France was in the hands of about ten to fifteen banking houses^[who?] whose founders, in most cases, came from Switzerland in the second half of the eighteenth century. These bankers were deeply involved in the agitations leading up to the French Revolution. When the revolutionary violence got out of hand, they orchestrated the rise of Napoleon, whom they regarded as the restorer of order. As a reward for their support, Napoleon, in 1800, gave the bankers a monopoly over French finance by giving them control of the new Bank of France (Banque de France).^[1] Banker Claude Périer drafted the first statutes and Emmanuel Crétet was the first governor. For the first fifteen years it was the sole issuer of bank notes in Paris, and this privilege was extended to other financially important cities and the rest of the country by 1848.^[2]

The Bank was also instrumental in the creation of the Latin Monetary Union (LMU) in 1865. The countries of France, Belgium, Italy, and the Swiss Confederation established the LMU franc as a common bimetallic currency.

In World War I, the Bank of France sold short-term Treasury bonds abroad to help pay for wartime expenditures. France abandoned the gold standard shortly after the outbreak of war. Debts amounted to approximately 42 billion francs by 1919. Following the war, the Bank sought to re-establish the gold standard and acquired capital from a number of American and British banking syndicates to defend the franc from exchange-rate fluctuations. The Bank also began to hoard gold reserves and, at its peak, held 28.3 percent of the world's gold stock (only behind the United States at 30.4 percent). Some scholars have asserted that this gold accumulation was a contributing factor to the Great Depression.^[3][4][5] Under Émile Moreau, Governor from 1926 to 1930, the Bank consolidated gold reserves created a stabilization insurance fund (fonds de stabilisation), and tested new monetary policies in the wake of a global depression.

Jean-Claude Trichet, Governor from 1993 to 2003, was the final Governor of the Bank until the establishment of the European Central Bank (ECB) in June 1998. Today, the ECB sets monetary policy and oversees price stability for all countries in the Eurozone, including France.

central banking is by its nature, a government empowered institution. it is given powers beyond those achievable in the free market. according to michael rozeff, central banking can only exist once four conditions are satisfied (rozeff, 2009). these four necessary prerequisite steps are, he asserts, all unnatural designs imposed against a free market. below i will explore these preconditions, using them as a framework by which to analyze central banking from a free market and political perspective. to assess the historical truth in the implementation of such steps, reference will be taken from some early developments in
central banking, both in france and the united states. these are primarily drawn from the work of Vera smith (1936).