At that time, the privilege of issuing notes was not confined to a single bank. But in 1806 the Bank of France was placed under state control, and, by and by, the other issuing banks disappeared, by amalgamation or otherwise, and the Bank of France became, and has ever remained since, the only issuing bank in Continental France.
The present capital is $36,500,000, all paid, divided in $200 shares....
[Francs are given in terms of dollars.]
These shares are held by the public, the average being about 5-1/2 shares for each shareholder. One-third of the shares are held by persons possessing only one share. They are dealt in freely in the market, their quotation being at present about 465 per cent.
The profits go to the shareholders, as in every other company. In 1912 the bank earned a net profit of $8,200,000. The last yearly dividend was paid at the rate of 20.83 per cent....
The governor of the Bank of France and the two sub-governors are appointed by the State. They are a.s.sisted by fifteen regents, nominated by the meeting of the shareholders. The same meeting appoints three censors whom you would call auditors.
The board, composed of the governors and regents, decides all questions concerning the rate of discount on loans, the issue of notes, etc.
Three of the regents, a.s.sisted by twelve shareholders chosen from amongst the prominent members of the commercial and industrial profession, compose the "discount committee," which meets at least three times a week and decides upon the acceptance or refusal of the bills presented for discount....
The notes are ... legal tender, but, of course, may be exchanged, at sight, against cash--I don"t say against gold, as I will explain presently.
The denominations circulating at present are $10, $20, $100, and $200.
One dollar and $4 notes were issued at critical times, but have been withdrawn since. In case of need, they would be resorted to again, and in this respect I should like to mention the fact, demonstrated by experience, that even where the circulation is already sufficient, a supplementary issue of small notes--unless, of course, the amount be too unreasonable--is much less likely to depreciate the currency than an issue of larger ones. In a certain sense, we may consider that a country which refrains from issuing small notes in normal times, possesses _ipso facto_ a valuable reserve in case of emergency....
I need not recall the remarkable role played by the Bank of France, under the leadership of its very distinguished governor, M. Pallain, during critical periods such as 1907, when that inst.i.tution succeeded in keeping the French discount rate on an exceptionally moderate level, while giving valuable and effective aid, at the same time, to the London market.
How is this successful policy of the Bank of France materially possible?
Precisely because it has the option to pay in silver as well as in gold.
When the situation is such that withdrawals of yellow metal are to be feared, the bank quotes a premium on gold. At present, for instance, the quotation is about one-tenth of one per cent. premium, that is to say, you will only get $999 in gold against $1,000 in notes. If you want to get $1,000 cash, you can get them, but in silver.
As a consequence, there is no necessity to raise the discount rate in order to protect the gold reserve, and French commerce has the privilege of benefiting, as a rule, by the lowest rate of discount in the world. Thus the average bank rate, in 1912, was 3.37 per cent. in France, as against 3.77 per cent. in England, and 4.95 per cent. in Germany.
If we consider a period of fifteen years, from 1898 to 1912, the average rates are:
_per cent._ France 3.8 Holland 3.52 England 3.62 Belgium 3.65 Switzerland 4.14 Austria 4.22 Germany 4.50
CASH HOLDINGS OF THE BANK OF FRANCE
[166]The undeniable characteristic of our present currency system is that it presents a transition between the money system and the clearing system, the ultimate form of which we are unable accurately to define.
This period of transition, which began when the idea of genuine credit was conceived, will last for centuries before we can rid ourselves of money as a medium. The system of purely fiduciary currency, which is in process of becoming firmly established, is not yet sufficiently stable to prevent us from being thrust rudely back into the old ways whenever we exceed the limits of our resources.
Crises afford a striking proof of this fact. The initial period, the precursor of the crisis, is nothing but an abnormal extension of credit and of speculation. At such times the need of leaning upon the solid foundation of metallic currency is felt with a new intensity; and when, with a blindness resulting from overconfidence, this need has been neglected, when, from a disregard of the functions of money, a crisis is brought about by the violent rupture of the equilibrium of credit, gold at once resumes its rights, is sought for on all sides, and, according to the seriousness of the offence, exacts complete amends, with the honors of a premium as high as it may choose to make.
It clearly appears, therefore, that this quest for simplification in the means of credit, which each nation ardently pursues in the interest of its own industrial and commercial development, demands the greatest circ.u.mspection. In developing credit, metallic currency must not be too much overlooked. We must not lose sight of the fact that "credit, in order to be solid and permanent, must have a solid and permanent foundation."
The first care of the architect who is about to erect a great building is to secure for it a broad and firm foundation. Likewise, in the vast and continuous upbuilding of a nation"s credit, the metallic base requires the most attentive and enlightened consideration. To provide for it, the entire resources of the State are not too great. It is difficult to understand how, in certain countries, an undertaking of such universal interest should be left to private enterprise. How can the latter be powerful enough to acc.u.mulate holdings in currency which may have to remain idle for long periods, and which can unflinchingly resist all a.s.saults and all storms?
In France a system which has already pa.s.sed the hundred-year mark and has been particularly fortunate as to results, intrusts the Bank of France with the duty of building up and preserving the metal holdings, and this great organisation shows itself fully worthy of the confidence which the Government has always reposed in it. During its long career the bank has never ceased to control credit with rare foresight and a remarkably steady hand.
From 1870 up to the present time the cash holdings of the Bank of France have not ceased to grow. But the bank, of its own volition, could not have made such an acc.u.mulation. The exchanges are usually in our favor, owing to our position as lenders to foreign countries and to the extent of our exports, and this for many years past has resulted in the continual flowing of the precious metal into the vaults of the Bank of France.
In thirty-five years the amount of our metallic reserves has increased almost threefold. And it is worthy of note that while the amount of circulation increases together with that of discounts, loans, and current accounts, the fact is nevertheless established that the bank note tends to be more and more exclusively represented by cash holdings.
The silver holdings are continually diminishing, while the total holdings have increased. Indeed, the Bank of France avails itself of every opportunity to relieve its coffers of this depreciated currency.
Since 1898 a considerable portion of the holdings have been absorbed by the recoinage of a certain number of 5-franc pieces into subsidiary coins.
PLACE OF THE BANK OF FRANCE IN THE DISTRIBUTION OF CREDIT
We purpose now to investigate the organs of French credit, and to a.s.sign to each of these organs its function, in order then to ascertain what operations the Bank of France can perform and within what limitations.
We have therefore to examine (1) the function of local banks and of financial inst.i.tutions; (2) in what manner the Bank of France promotes the free distribution of credit; (3) in what measure the bank must control credit.
LOCAL BANKS AND THE FINANCIAL INSt.i.tUTIONS
The natural organs for the distribution of credit are the banks, but not all are able to spread it or popularise it in the same degree. Thus the "Haute Banque" (the great banking interests of Paris), solely engaged in operations of higher speculation or in international financial relations, does not interest us. The function of distribution is reserved for the local banks and the financial inst.i.tutions, while the function of the Bank of France is to preside over this distribution.
Local banks, pre-eminent less than one hundred years ago, have gradually seen their field of activity growing smaller, and a large number of them have been amalgamated with great inst.i.tutions, possessed of much greater resources, with branches over the entire country, and, it must be said, free from the routine which caused the downfall of many provincial houses. With their decline we greatly regret to see the disappearance of personal credit, which it is more and more difficult to make available.
The _intuitus personae_ (the judgment of character), which may serve as a basis for credit granted to a neighbor by a neighbor, can not be considered by a corporation official who has almost no means of estimating the solvency of individuals except from the material and tangible side.
The local banks, as far as they have survived, have adopted methods which do not bring them into compet.i.tion with their powerful rivals.
They have been obliged to grant long-term credits or content themselves with being intermediaries for the Bank of France in granting credits to parties known to them, generally farmers or small landed proprietors, with a view to rediscounting the paper. On this point again there is cause to regret, if not their disappearance, at least their effacement.
The inst.i.tutions for agricultural credit, in spite of all the attention they have received, have not yet been able to replace the local banks in the distribution of personal credit applied to agriculture.
The great financial inst.i.tutions, of which the four most important are the Credit Lyonnais, the Comptoir National d"Escompte de Paris, the Societe Generale, and the Credit Industriel et Commercial, have a much more important part in the distribution of credit. Thanks to their numerous agencies, to their attractive conduct of business, with the service of a courteous and attentive staff, they have gradually taught the people new habits in investment and confidence in credit, to such a degree that he who but yesterday h.o.a.rded in a stocking prefers to-day, if not to speculate on the Bourse, at least to make deposits in the savings banks. The great financial inst.i.tutions have done much to give even the lowest cla.s.ses confidence in credit, and to introduce a system of clearing.
In closer contact with the public than the Bank of France, which is restricted by having to protect the reserve of which we have spoken, these inst.i.tutions are able more readily and effectually to reach and to mould the public. But that is not their only service nor the only reason for their existence. There are transactions which they alone undertake, which they alone can undertake, and which must be performed because they are in the line of progress. These operations are sources of profit in the same way as are discounts and loans for the Bank of France. Such are demand deposits, stock-market orders, and the flotation of securities. These operations cannot be undertaken by the local banks.
Occupied for the most part with long-term dealings, they have no use for deposits payable on demand. If they should have such deposits, their total would never reach a sufficient proportion safely to permit the investing of an important amount.
On the other hand, the Bank of France does not and, even if it wished, cannot compete with the financial inst.i.tutions in undertaking such operations. Neither the acceptance of interest-paying deposits nor the flotation of securities can come within the province of a bank of issue.
The flotation of securities necessitates a certain contingent responsibility, and the inst.i.tutions which place securities on the market sometimes engage their credit for very large sums, which are sufficiently guaranteed by their capital, but the credit which is intended to safeguard the stability of the bank note cannot be pledged for that purpose.
It happens that the Bank of France sometimes transmits subscriptions, but this is a gratuitous and entirely voluntary service. In no case can the bank take for its own account bundles of securities in order to dispose of them to the public. The purchase and sale of securities, which is so profitable a business in all financial inst.i.tutions, could never, it is clear, be a successful undertaking in the Bank of France.
The staff of the bank has no special information as to the various securities dealt in on the Bourse, and cannot, therefore, give valuable advice. Its role would apparently be confined to handing out the financial journals and pa.s.sively awaiting orders. If it should act otherwise, the staff would engage the moral responsibility of the Bank of France; but the bank, evidently reluctant to undertake such operations, prefers to leave that field to its auxiliaries, the financial inst.i.tutions.
However, at the present time, the Bank of France tends to compete with these inst.i.tutions for the purpose of maintaining sound conditions of credit which inclines more and more to speculation. Thus it is extending its department for the purchase and sale of securities in order to safeguard a poorly informed public against the excesses of speculation which dazzle with the hope of an always illusive gain.
IN WHAT MANNER THE BANK OF FRANCE PROMOTES THE FREE DISTRIBUTION OF CREDIT IN FRANCE
Thus the Bank of France must leave entire freedom of action to the financial inst.i.tutions and must not encroach, theoretically at least, on their functions, which, as has been shown, differ materially from its own. The bank even owes them its protection, since they are valuable auxiliaries in pursuing its aim of extending credit as liberally as our metallic base permits. In the interest of the public the cash holdings are daily at their disposal. The help and protection of which we speak are not mere pa.s.sive professions. Unfortunately, there have already been numerous cases where the bank has had to interfere in order to bring effective a.s.sistance to private banks. The bank has, of course, acted thus for the welfare of the entire community, but also for the satisfaction of protecting its auxiliaries with all its power in the fulfilment of a difficult task.
Let us recall the failure of the Societe des Depots et Comptes Courants, in the beginning of 1891.
"The Bank of France, after exacting such security as the concern could still offer and, furthermore, the guaranty of several large banking inst.i.tutions, for the purpose of limiting possible losses, authorised discounts to the amount of 49,228,206.87 francs. Thanks to this a.s.sistance, all deposits were paid off, and the dreaded effects of a panic were once more averted."[167] However, in spite of the precautions that had been taken, the liquidation was slow.
Whenever the financial inst.i.tutions have found themselves in need of effective pecuniary a.s.sistance, the Bank of France has regarded it a duty to help them, and in normal times, by a.s.sisting them with its resources, it facilitates liberal credits.
IN WHAT MEASURE THE BANK MUST CONTROL CREDIT
It may happen that the great financial inst.i.tutions expand too rapidly or unwisely this or that branch of credit. Mindful, above all, of their own interest, which is but natural, they have no especial regard for the public welfare, their only aim being to make their capital bear fruit and to pay large dividends to their shareholders.
The Bank of France aspires to a n.o.bler ideal, and many of its policies are primarily for the public good. The development of credit is an extremely delicate matter; there are many instances where the application of this agency has led to great catastrophes. It is undoubtedly impossible to exercise a strict supervision over the financial inst.i.tutions; any such measure would soon appear vexatious and would be, moreover, contrary to our spirit of liberty and independence.