Finance
.The- Falling Franc. • IT would be rather difficult to say whether • anxiety concerning the crisis in France is more concerned with political or financial 'Consequences. In this short article I propose to refer more especially to the possible reactions upon the markets here, though by way of preliminary it is necessary perhaps to say something with regard to the history of the currency crisis and its effect upon social and political developthents- in 'France. 'Some few years before our own departure froth gold • • in 1931 there was an acute currency crisis in France, Mid-on 'apprehensions Of a devaluation Of the Franc there was a general flight from that currency. These expectations of devaluation were fulfilled under the regiifte of M. Poi/rare, and' it will be remembered that • the' gOld • contents Of the Franc were reduced by 'about four-fifths, so 'that whereas the' Franc had • for many years been quoted at about Frs. 25 to the pound, the new' quotation was just over Frs. 124 to the pound. . .
But although_ was a , blow to French 'prestige, when once , devauation had taken place and stabilisa- tion had been successfully effected there was a gradual repatriation of French money which had been deposited abroad, and things for a time went well. gradually, however, the position again began to deteriorate, partly as a result of unsound conduct of the national finances and the persistent evasion of taxation by the French public, while later French trade began to be hit by the departure of Great Britain from the gold standard and the consequent depreciation of. sterling which was followed later by the departure of the United States from gold and still later by the devaluation of the United States Dollar. In common with other gold currencies„ the trade. of France began to .suffer and prices began to rise, while the situation was further affected by grOwing unsettlement in French politics and unrest among the French people,- both ccinditions being aggravated by the -ctirreney troubles: ' —
FRESH FLIGHT FROM THE FRANC.
Consequently, for some few years now there has been a persistent flight from the Franc, and French money -has been coming to this country, large sums being held here actually in hoarded gold and' banknotes and many millions more -in sterling securities: Rai passiz with the currency crisis has been the disturbed condition of-French politics,-reSulting in the Spring of this year in 'the establishment of -a Socialistic Government with Communistic' tendencies in some of its sections. Those conditions of course have still further stimulated the flight from the Franc, and the one action which perhaps might have saved the situation—namely, a fresh devalua- tion of the Franc—has not only been brushed aside by the Blum administration, but the .social and fiscal policy has been of a character which, by raising the costs of production and prices, has. intensified the- situation and made an ultimate devaluation of the Franc almost inevitable. Instead of devaluing, however, the new Government has up to the present declared its determina- tion to avoid that course,,: abd..-vi'hile all kinds of penalties 'have been' threatened' to' anyone sending money abroad, the threats have been powerless to brink back any of the money already sent or even to preVent fresh gold froth leavingthe country:: Meanwhile; the Budgetary position in France continues to . be. .serionS, and although ,an appeal was ,thade .. some time ago to . the French public to .support the Government by subscribing a Bond issue; the appeal met with very partial success.
POLITICAL ALARMS.
'Amidst these conditions, events Such as the action of Germany some months ago in marching to the Rhine frontier naturally served to accentuate the general anxiety on the part of holders of capital in France, while more recently the nature. of. the. Spanish revolution has (Continued on page 433.)
Finance
(Continued from page 438.) aroused apprehensions as to the extent.to which Commun- ism may exist in France:: It will readily be seen, therefore, that, although partaking- so largely of a currency crisis, it is a crisis which has inevitably occasioned as much political as financial disturbance.
EFFECT ON OI: R MARKETS.
Dealing now, however, simply with the possible reper- cussions of these, conditions upon the financial situation in:I-his country, it will readily be seen that one result of the developments of the past few years has been tosreate conditions here of a somewhat artificial and misleading ratter; To take one point alone, readers ,ufitlOs article will_ probably have noticed frequent reference to the fact that the Bank of England Note Circulation—that is the notes actually out in the banks or in the pockets, of the pepple7--has shown an increase of about /44,00,000 compared with a year ago. To some extent, no doubt, this increase has been due to more active trade here and increased spending power on the part..of the com- munity. It has, however, also been largely due to the remittance here of ". huge sums -from France for the purpose hoarding` in Bank of England notes. In -addition, -there haVe been eitensive purchases of gilt-edged and 'other "securities in this Market; to say nothing of the vast sums in actual gold which are held here On French account It will be seen, therefore, that the crisis in France has produced a kind of double and, it might almost be said, a conflicting anxiety with regard to future developments across the Channel. If, on the one hand, the situation in France should worsen politically and there should be serious political disturb- ances, then there would be anxiety on what may be termed political grounds, and, needless to say, no one here wishes developinents of that kind, even though conceivably they would be accompanied by a further influx here of unwanted money from France.
If, however, on the other hand, there should come a devaluation of the Franc, accompanied later by a success- ful stabilisation and a return of real confidence on the part of the French people, then we might expect to see a rapid repatriation of French money at present deposited here, and that, in its turn, might temporarily, at all events, have an effect upon the English market for securities. Moreover, if and when a devaluation of the Franc takes place, it remains to be seen whether the devaluation will be sufficiently drastic to reverse the trade position as it' exists today, giving French trade a fresh impetus arising from a depreciated currency. It will,. be seen, therefore, that the effects of the French currency crisis are not restricted to France, but extend to this and to other countries. ARTHUR W. KIDDY:
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