The Online Library of Liberty

A project of Liberty Fund, Inc.

• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

CHAPTER V.

THE BANK OF FRANCE.

SECTION I.

ORIGIN OF THE BANK.

FRANCE has had a peculiar experience with banks of issue. On the one hand she has suffered from all that is worst, and on the other has enjoyed all that is very advantageous, in such institutions. The first French bank of issue was a creation of Law’s, and was established to dispose of all the financial embarrassments transmitted by Louis XIV. to his successor. It would undoubtedly have achieved its purpose had its founder possessed a better understanding of the nature of credit and its limitations. The lack of such understanding, and the lack, likewise, of that delicacy of management which is an indispensable requirement when matters of public confidence are at stake, caused Law’s bank—known as the Royal Bank—to go to pieces in circumstances of terrible catastrophe; and in consequence the very name bank came into such disrepute among Frenchmen that it needed the lapse of almost a century and the exercise of all the authority of the First Consul before another institution of like privileges, and styled the Bank of France, could be erected.

The absence of a central credit establishment had made itself severely felt during the closing years of the monarchy. The archives of the Ministry of the States-General show that, in 1788, much clamor had arisen for the introduction of banks on the plan of the Bank of England. But the Revolution supervened, concerns of greater moment absorbed attention, and neither the Constituent Assembly nor the Convention had leisure to take up the details of bank organization. Indeed, by an act of 1793, proposed by Cambon, a bank of issue, known as the “Discount Bank” (Caisse d’Escompte), which had been in existence since 1776, was extinguished. After the evil days of the Revolution, Government banking devices again received consideration.

PLANS FOR THE CREATION OF A GREAT BANK IN 1796.

After the report had been read, Citizen Laffon Ladébat submitted the following letter, which had just been received from the Minister of Finance:

“Paris, 17th Pluviose, Year IV of the Republic, One and Indivisible

“The Minister of Finance to the Citizen Laffon Ladébat, Representative of the People:

“Citizen—

I have read to the Executive Directory your letter of the day before yesterday.

“The Directory has with interest learned of your efforts to promote the organization of the bank. It recognizes how serviceable the proposed institution would be to the interests of the Republic in general and to the public credit in particular. Surely no one’s unmindful of the critical position to which commercial houses formerly holding the highest rank are now reduced, or of the untoward influence of our embarrassed circumstances, rendering the most delicate trade operations uncertain and profitless. No important enterprise can be attempted, even if entered upon courageously, without exposure to numberless vexations and perils. These are truths that cannot escape the observation of anyone with eyes to see. There is but one means of relief from such extraordinary troubles for a nation rich in territory, manufactures, industry, and personal property of every kind. We need harmonious co-operation by all citizens of note for the renewal of trade on a scale of some magnitude. It is essential that they give their credit and their strength a threefold power by aggregating them in an imposing association with a great volume of investments and shares. Your previous letters have informed me that the foundations for such an association have been laid. I desire to encourage you to give it all the scope possible.

“You have very properly suggested that a means for assuring the immediate brilliant success of the institution and placing its transactions on a solid basis, would be the assignment to its care of national property whose value would serve to lend it a great credit. I attach to this letter a statement of the properties that the Government has at its disposal, and that can be negotiated through the bank. This statement, which includes none of the taxes of the Republic and only 30,000,000 livres of forced loan assessments, shows a total of 883,000,000 livres (fiancs). You will not omit to notice, moreover, that it comprises none of the national property whose sale is suspended until the 1st Prairial, and whose value, based on information received from all the departments, was estimated at 2,600,000,000 in my last report to the Executive Directory. The list does not even take into account the Belgian properties. These two observations will suffice to demonstrate to your association what enormous values the Republic has in its possession.

“It would be desirable to have the bank perform a regular service for the Government, reaching monthly 25,000,000 livres in coin or in circulating media equivalent to coin. The bank would be authorized to effect all sales for a commission to be agreed upon, and would reimburse itself out of the products of sales in a measure corresponding to the amounts realized. It is my expectation that the building in the Rue Neuve des Capucines will be vacated in the next ten days. It will be necessary for the management of the bank to consider what arrangement should be effected between itself and the Government for that building. Finally, Citizen, a day may be appointed upon which we can go together to inspect the system of manufacture of the assignats at the printing establishment, with a view to the practical purposes of the bank.

“From the foregoing, Citizen, you will perceive that the Government has a genuine desire to have the bank occupy a broad sphere, since all that I communicate to you is on behalf of the Directory. You should adopt and publish by-laws for the establishment. You are authorized to utilize the particulars of the Directory’s sanction for strengthening the confidence of your shareholders and increasing their number. I trust your answer will inform me of the steps taken at to-night’s meeting. I shall communicate it promptly to the Directory.

“Welfare and fraternity,

“Faypoult.”

After this had been read, the president put to vote the following resolutions prepared by the committee:

The meeting ordered that the plan and the resolutions should be printed, and that at the next meeting all the citizens assembled at the present meeting should be entitled to cast deliberative votes.

Here follow thirty-six signatures.

BONAPARTE’S INITIATION OF A PLAN.

Soon after Bonaparte’s coup d’état of the 18th Brumaire, whereby he became First Consul, he devoted painstaking thought to the financial condition of France, and personally studied the mechanism of banking. He fortified himself with the counsels of the men who had contributed to the projects of 1796. His special adviser was M. Mollien, whom he afterward appointed Minister of the Public Treasury (Ministre du Trésor Public), and whom he retained in that office throughout the entire duration of the Empire. The practical result of these preparations was the compilation of the original constitution of the Bank of France, a most remarkable work. Its preface, edited by Bonaparte’s own hand, is as follows:

These resolutions are the perfection of simplicity. They confer upon the bank in process of formation the title of “Bank of France.” In view of the melancholy reminiscences of the Royal Bank, this was indeed a courageous disregard of violent prejudices; but it was consistent with the practical designs of the whole undertaking, for the name expressed precisely what was contemplated, as no artful substitute could have done.

The scope of operations of the proposed bank was indicated as follows:

All transactions other than in gold or silver were prohibited. With the exception of the provision concerning investments and savings, the original regulations are still in existence, and govern the operations of the Bank at this day. Adopted at a time when personal property, as distinguished from real estate, did not receive formal legal recognition, and when it was impossible to forecast the change in this respect that has since come to pass, the foregoing rules have shown themselves to be marvelously well adapted to new economic conditions; and only a few comparatively unimportant regulations have had to be added to them. The section concerning the issuance of notes (No. 4) merits particular notice. In most legislative acts, restraints more or less ingenious had been prescribed to limit the emission of paper currency. In the organization of the Bank of France, such restraints were left to the intelligence of the management; but an explicit rule was laid down for their governance. The Bank was always to be in condition to honor its obligations, and was always to have at command the means to do so—i. e., the combined amount of its coin reserve and of its negotiable paper as it matured. Experience has demonstrated the prudence of these provisions; and, leaving out of consideration great political crises for which it was not responsible, the Bank of France has invariably been able to redeem its notes on demand and settle its current obligations.

The administrative machinery arranged by the original regulations was very simple. A committee composed of two hundred principal shareholders who had held their shares for at least six months was to select fifteen administrators, called “Regents,” for a term of five years, and three inspectors, or comptrollers, called “Censors,” for a term of three years. Each year one-fifth part of the regents was to be renewed, and one-third part of the censors. Both regents and censors were eligible for re-election. At first, the regents chose from their own body a “central committee,” which was intrusted with the general management of the Bank’s affairs. This practice underwent modification later.

The capital of the new bank was fixed at 30,000,000 francs, divided into 30,000 shares, with a face value of 1000 francs each. Shares were offered for subscription at the beginning of the year 1800, but they were not sought with much eagerness by the public. Bonaparte, in order to set an example, individually took 100 shares, and caused the members of his family and the personages attached to him to subscribe for stock. Nor did he stop there. The receivers-general of the public taxes were required to convert one-half the amount of their official surety into shares of the Bank of France, and to pay the other half into the Bank on deposit. “This was probably the first time,” says Mollien, “that it occurred to a government whose treasury was exhausted to give money to a discount bank for the exploitation of its lucrative concession, instead of requiring the shareholders to pay a consideration for their privilege.” The word “privilege,” employed by Mollien, does not appear in the original regulations, but certainly is implied by their spirit; and before long it was apparent that the monopoly of issuing notes would become both a privilege and a duty of the Bank of France.

ADVANCES TOWARD NOTE MONOPOLY.

One of the first acts of the Bank was the absorption of an institution known as the “Caisse des Comptes Courants” (Bank of Open Accounts), which issued notes payable to bearer and made loans—principally to depositors. But some other note-emitting banks of slight importance were permitted to continue. The Bank of France was favored by circumstances at the beginning of its career. It profited by the hopes of peace inspired by the treaty of Amiens, and seemed to be in a position to tranquilly expand its business. But symptoms of a coming rupture between France and England were presently manifest. The renewal of hostilities would necessarily be unfortunate for the commerce of France. At the same time, the expedition was undertaken for the recovery of San Domingo. The bankers, and through them ultimately the Bank of France, had supplied the funds for the very important armaments which were destined for that colony, and which, if war should be resumed, would become prey to the English navy. The First Consul, thoroughly acquainted with the condition of affairs, expressed his disquietude to Mollien. “He asked me,” says Mollien, “whether the drafts drawn on the Bank would be paid in the event that the vessels sent out should be shipwrecked, and whether, on the other hand, if they should be protested, some calamity would not thereby befall the Bank. He also spoke apprehensively about the two side establishments, the Caisse d’Escompte de Commerce (Commercial Discount Bank) and the Comptoir Commercial (Bureau of Trade), which operated a joint discount office in Paris, and inquired whether, in case they should experience a shakeup, the Bank of France would not be in danger of overthrow from the countershock. This led him to ask, further, whether, according to normal principles of banking, the rivalry of several discount establishments in the capital might not involve peril for the banks individually as well as for the Government. ‘Moreover,’ pursued the First Consul, ‘I do not like this competition of the three banks in the making of paper money. If, for example, these three institutions, whose paper is accepted by all merchants and likewise in the Government offices should suddenly suspend payments, great embarrassment might result in every department of the public service, widespread confusion throughout the country, and, which would be the prime misfortune, a scandalous state of things in the foreign trade. Have you not told me that, in order to preserve credit, it is a general prerequisite that artificial money, like that of the Bank of France, shall issue from only one source? I adopt that idea. A single bank can be more easily watched than several concerns—both by the Government and the public. With a view to emergencies, I cannot see any virtue in competition of this kind.’ ”

The regent of the Bank, upon being consulted, manifested willingness to accept the monopoly offered them by the Government, at least for the city of Paris. The views of the First Consul were duly formulated by Prétet, Councillor of State, and submitted to the legislative body, which approved the Government project for a monopoly to the Bank of France. By a law promulgated the 24th Germinal of the year XI (April 14, 1803), the independent establishments in the capital that had bank notes in circulation were required to withdraw them and forbidden to put forth new ones; although, outside of Paris, banks of issue were permitted to operate independently of the Bank of France. The Government, in increasing the importance of the Bank of France, deemed it wise to give the Bank a broader basis, and prescribed that the capital should be raised from 30,000,000 francs to 45,000,000 francs. The shareholders were allowed a dividend of but six per cent. The surplus profits were to be devoted to the reserve and to purchasing five per cent. consols, the interest of which was to go to the shareholders pro rata. The other sections of the act confirmed the original regulations, but instituted two important innovations. First, a “discount council” was created, to be composed of twelve merchants selected by the censors; their function being to pass upon the commercial paper presented for discount. Second, it was specified that seven of the fifteen regents and all of the three censors should be chosen from among merchants and manufacturers, thus doing away with the undesirable circumstance of exclusive control by the professional financial class. In order to attract funds on open account, it was stipulated that no stoppage of payment should be allowed on deposits. This rather bizarre proviso, which is still in force, has at times been a cause of embarrassment alike to the Bank and the public. The period of the concession was made fifteen years, to expire September 24, 1818.

THE CRISIS OF 1805—LAW OF APRIL 22, 1806.

The Bank had already, in 1802, undergone a serious crisis. In 1805, it was to have a tempestuous experience of a far different kind. The preparations made at Boulogne by Bonaparte, who had then become Emperor, for the expedition against England, had absorbed very large sums. Meantime, the rate of interest was not uniform throughout France. Considerable and absolutely certain profits were realizable by making discounts in Paris at six per cent. and placing the proceeds of capital in the provinces at a much higher percentage. This gave rise to discomfort for the Bank, which was expected to bestow aid in all cases of need. The Bank might have mastered the difficulties of the situation with comparative ease had not its management been at loggerheads with the Minister of the Public Treasury, at that time the Count of Barbé-Marbois. The receivers-general of the public taxes were accustomed to give bills at the beginning of the year, falling due month by month, representing the estimated aggregates of the taxes they were to collect. These bills, secured by the sureties of the receivers-general, were turned into the Treasury, and from there were sent to the Bank for discount. But instead of reimbursing the Bank for the matured bills, which would have renewed the coin and bank notes taken away from its vaults, Barbé-Marbois replaced them with other bills maturing later; so that the Bank kept on paying out money without receiving any back. Consequently, on September 24, 1805, it found itself in debt to the amount of 61,000,000 francs in notes and 7,000,000 francs for open accounts—both items of liabilities payable on sight, with only 782,000 francs in specie to discharge these obligations. The conditions were so grave that the Bank, for the moment, considered whether it ought not to discontinue its service. Throngs of note-holders crowded at the wickets, and the irritation and defiance displayed by the mob were heightened by the clumsy measures of the management. The Bank had no more coin, but it had a solid basis of commercial paper and Government bonds, besides good credit. It utilized this credit to buy up specie wherever it could be procured, noteworthy in Spain, and received some from the Treasury. By a policy of discrimination, exchanging notes only for those who stood in real need of coin, it succeeded in re-establishing business, and was able to resume open payments on January 26, 1806.

In this crisis, the two parties concerned were both in the wrong; on the one hand the Bank, which had not understood how to properly regulate its discounting business and its circulation; and on the other the State, which had compelled the Bank to abuse its privilege of issuing currency whilst repudiating its own share of the responsibility, and ascribing to the detective organization of the Bank errors that lay at the Government’s own door. It was the Emperor’s opinion that the evil had come about largely because the Government lacked sufficient control over the Bank. He decided to reinforce that control, and to place at the head of the institution a manager vested with power to make its administrative machine run smoothly and without structural weakness. April 22, 1806, an act was passed installing in charge of the Bank a representative of the State with the title of Governor, who was to have two colleagues styled Under-Governors. These three new officials took the place of the original Central Committee, and were clothed with very comprehensive authority. The governor was given full executive power, with the right of veto against the Regents’ Council, no decision of which could be valid without his signature; he was to have the sole right to appoint and dismiss the employees of the Bank, and he was to represent the Bank in all its concerns and in its relations with the State. Another clause provided that three of the regents should be selected from among the receivers-general, as State functionaries. The Bank bowed to the will of the Emperor, but for a long time regarded the office of governor with distaste, and repeatedly attempted, though always unsuccessfully, to have it abolished.

This Act of April 22, 1806, also augmented the capital of the Bank from forty-five to ninety millions; gave larger recompense to shareholders by providing that in addition to the six per cent. legal dividend, they should receive two-thirds of the surplus annual profits (the other third going into the reserve); and, finally, the law extended the grant to September 24, 1843. All the clauses of the original regulations and of the Act of the 24th Germinal, Year XI, which did not conflict with these new arrangements, were retained without alteration.

PROVINCIAL BRANCHES CREATED.

After this troublous period, whose causes and results we have briefly considered, followed a time of calm, during which the Bank fixed definitely its status in the country. It established three branches—in Lille, Rouen, and Lyons—and rendered numerous services to the Treasury by making large advances on the obligations of the receivers-general. In 1810, notwithstanding the highly satisfactory political situation of France, and the pledge of peace seemingly vouchsafed by the marriage of Napoleon to an archduchess of Austria, the aspects of commerce were far from brilliant. The Continental blockade was so burdensome to trade that Napoleon had to institute expedients for relief by a system of licenses, and by going to the aid of certain embarrassed houses with the funds of the extraordinary Government demesnes. Such improvised methods, besides being inefficient, could not last long. By the end of 1810, France was in the throes of the crisis. The Bank had discounted 840,000,000 francs of paper, 800,000,000 of which was commercial paper. At the same time, the bank-note circulation had increased and the collections had decreased. The Bank, unwilling to raise the discount rate, refused all paper having longer than seventy days to run. Soon afterward, confidence returned, and as demands decreased the Bank rescinded the restrictions. During this stress the Emperor had been impressed by the services which the Bank was able to render. He resolved to require its management to cultivate their concession on a larger scale, and requested them to establish offices generally in the large business and manufacturing towns, his ultimate design being to bring about through such a system a reduction of the discount rate, which he desired should be uniformly adjusted at four per cent. The Bank showed a disposition to accept and even to claim the privilege of starting branches in localities which promised advantageous results, but exhibited a lively repugnance against operations in cities where conditions were likely to prove unfavorable. It took refuge behind the Act of the 24th Germinal of the year XI, providing for the creation of independent local banks. This reluctance of the Bank was well justified. At that early period, it lacked both experience and means to direct a considerable number of branches, having conducted only the three already mentioned; and these three, moreover, had been run at a loss. Tired of controversy, Napoleon authorized the foundation of several local banks, which played a modest though useful and honorable part.

ATTEMPTED REFORMS.

The last years of the Empire, signalized by terrible military disasters, rolled by amid public ruin. The Bank once more found it impossible to redeem its currency when presented, but its credit had enlarged and, relatively, its troubles hardly attracted notice, public attention being engrossed by the colossal political events.

After the fall of Napoleon the management of the Bank sought to have amendments made in certain legal provisions which they regarded as unjust and oppressive. Its grievances were threefold; touching, first, the exacting Government supervision; second, the excessive capital and reserve; and third, the compulsory maintenance of branch offices. Demands were made for the abolishment of the office of governor, for authority to reduce the capital to 67,900,000 francs (to which amount it had already been tentatively brought by buying up 22,100 shares), for permission to distribute amongst the shareholders a part of the reserve, and lastly for discontinuance of the branch offices at Lille, Rouen, and Lyons. The Government declined to do away with the governor’s office, but tolerated the reduction of the capital, approved the desired distribution of a portion of the reserve, and consented to the terminating of the branches.

SERVICES OF THE BANK TO THE STATE.

Although the Bank of France, as a creation of the Empire, naturally invited some suspicion from the Government of the Restoration, Louis XVIII. made several calls upon it and obtained important services. Liquidation of the obligations of the Imperial régime had occasioned a heavy public debt. As questions were raised concerning the solvency of the French Government, and the probable regularity of interest payments, the Minister of Finance, Count Corvetto, assigned to the Bank responsibility for the bonded indebtedness. He abandoned to it the revenues from the registry tax, the stamp duty, the “door tax,” the lottery, and the public domains, to enable it to make the interest payments; and also granted to it a bond issue of four millions income, of which the Bank might sell part or the whole, should the other resources prove inadequate. The Bank, on its part, was to pay the interest coupons on presentation, and make advances if necessary. This arrangement reassured the bondholders as to the security of their income, and contributed in a powerful manner to restore public credit. The Bank continued to discharge this function for the State from 1817 to 1827. During the early career of the Restoration, the Bank had to pass through a dangerous crisis (1818), produced by excessive speculations in the numerous Government loans. But it weathered the storm with ease, and was scarcely affected by the crisis of 1825.

REVOLUTION OF 1830—THE DISCOUNT BUREAU.

The year 1830 opened under favorable auspices. Then came the revolution that was to put an end to the Bourbon rule. This was followed by profound business complications. In view of the absolute impossibility of collecting on bills of exchange, maturities had to be extended for ten days in Paris. The Bank displayed complete devotion to the public welfare in this critical position. It extended every facility and convenience to debtors in distress, and took the first steps toward a formal programme for the relief of trade. The Government, as a means of manifesting its solicitude in a practical way, set apart 30,000,000 francs for the purpose of advances to houses in difficulties. Some loans were made direct. To the Bank, however, belongs the credit of inaugurating a device immeasurably more efficacious than this State aid. It has been pointed out that the Bank of France, according to its regulations, was debarred from discounting any paper except that maturing within three months and bearing at least three signatures. During the emergency of 1830, there was in circulation much commercial paper at longer dates and bearing only two signatures, which, consequently, could not legally pass through the Bank. The management conceived the idea of establishing, under the name of a Discount Bureau, a temporary concern which, utilizing funds to be paid in by the State out of the thirty millions voted for the relief of commerce, should discount paper that could not be accepted by the Bank of France. The Bureau was to retain all such paper until it came within the three months limit, and then indorse it so as to supply the required third signature, whereupon the Bank would accept it. Thanks to this plan, in a period of less than one year, 450 firms, giving employment to more than 80,000 workmen, were helped decisively and placed in a condition to continue in business. The Bureau was instituted only as a provisional affair, and finished its career on the 30th of September, 1832.

ESTABLISHMENT OF BRANCH BANKS.

The valuable services performed by the Bank in this memorable crisis earned for it a true popularity. Having now acquired experience in using its credit, the Bank began to recognize the advantage of enlarging its sphere, so as to become in reality the Bank of France instead of a mere bank of Paris. There were in existence several Department banks of issue, whose notes had little circulation outside their immediate territory, but which enjoyed an honorable reputation and did serviceable work, restricted, but real. Their example was encouraging to the Bank of France in its new project; so, in 1836, permission was applied for and obtained to start a branch at Reims. As the venture proved satisfactory, other branches were introduced in rapid succession. At the beginning of 1840, five were in operation. Thus was inaugurated the first step toward the absolute bank-note monopoly which prevails to-day.

EXTENSION OF THE BANK’S PRIVILEGE.

The law of April 22, 1806, had indicated September 24, 1843, as the date of expiration of the concession. Since the end of 1839, the Government had been petitioned for a renewal of the charter. The great majority manifested a favorable disposition respecting the proposal to give the institution a monopoly of note-issuing. The famous Rossi was commissioned to prepare the report on the subject to the Chamber of Peers; and he demonstrated the advantages of the contemplated monopoly in an essay whose cogency of argument has never been surpassed. He said:

On June 30, 1840, an act sanctioned by Thiers, as President of the Ministerial Council, was adopted, granting to the Bank the privilege of continuing to issue its notes until December 31, 1867, but with the condition that either the grantor or the grantee could withdraw from the agreement in 1855. The capital was officially fixed at 67,900,000 francs, and could not be increased or decreased except by legislative consent. Subordinate offices were not to be established or abolished without special decree by the Executive. All former legal provisions and regulations were retained in their integrity.

THE CRISIS OF 1847.

After these changes, nothing of special interest transpired in the course of the Bank until 1846, when there was a failure of crops in France and the neighboring countries. Grain had to be imported from Russia at a high price, and gold payment was demanded for it. The Bank of France had been supplying large sums for railroad construction, and its cash was at a low ebb, while its note circulation had expanded. To procure coin, it borrowed from Baring Brothers, of London, 25,000,000 francs, by lombarding its bonds, and bought with this amount bullion and coin at the Bank of England. Even these resources soon began to disappear, when, just at the opportune time, a most fortunate proposal was received. The Russian Government had accumulated a very considerable metallic reserve to guarantee its paper money. As this reserve yielded no interest, and in practice was not needed for the redemption of the credit-rouble, it was deemed desirable to put part of the fund into the form of an investment bearing interest. Consequently, by a ukase of March 21 and April 12, 1847, it was decreed that 30,000,000 roubles should be applied to the purchase of foreign government bonds of the highest order. Russia, necessarily, could not make a negotiation of such magnitude on the open market without occasioning an artificial advance in prices, and, consequently, she made overtures to the Bank of France, offering to buy the consols in its vaults to the amount of fifty millions. The Bank saw in this proffer a means of establishing an exchange on Russia that was non-existent, and accepted eagerly. Thanks to this lucky circumstance, the trouble, which had looked very ominous for a time, was dissipated without much difficulty.

THE REVOLUTION OF 1848, AND MORE BANK MONOPOLY.

The Bank had hardly got well out of these embarrassments when it was confronted by a new crisis, both political and financial. The Revolution of 1848, which burst forth in a manner wholly unforeseen, excited profound alarm. Holders of the Bank’s bills were seized with fear, and hastened to present them for payment. Simultaneously, demands for discounts became more and more pressing. It was manifest that the Bank could not endure this double strain, and would be obliged to come to a standstill unless the Government should make its notes legal tender. Accordingly, by a Provisional Government decree of March 24, 1848, the Bank of France and the Departmental banks were released from obligation to pay coin for their notes, and individuals and public officials were required to receive them as legal money. The currency of the Bank was not to exceed 350,000,000 francs, and that of the Departmental banks, 102,000,000 francs. The forced circulation thus accorded to the notes of the various banks of issue gave rise to grave complications. The Government was condemned on the score that it would be impossible to compel the acceptance of the paper of local banks outside their own sections of the country, and consequently that uniformity in the paper currency of the nation had become a necessity. An agreement was entered into on the part of the Government, the Bank of France, and the local banks, whereby the local banks were to consolidate with the Bank of France. The Bank of France took over the assets and liabilities of nine institutions, which were transformed into subordinate offices and designated as branches, on the plan of the branch establishments already existing. It gave to the share-owners of the local banks shares of its own stock equal in number to those that they surrendered. The capital of the Bank thus grew in consequence to 91,250,000 francs, divided into 91,250 shares of 1000 francs each. Since May 2, 1848, there has been only this one bank of issue in France, holding a complete monopoly. In the prevailing commercial distress the Government remembered the experience of 1830, and proceeded to open branch guaranty establishments in the cities where the Bank had branches, in order that paper might become discountable by providing the third signature. Several of those concerns, although designed only for temporary purposes, remain in existence to this day. Despite the troubles of the period and unjustified attacks, the Bank did valuable work, on a large scale, alike for the Government and for trade. It was instrumental in bringing out of their hiding-places large quantities of coin which had been secreted during the Revolution, and on August 6, 1850, it resumed the cashing of its notes over the counter.

SECTION II.

THE BANK UNDER THE SECOND EMPIRE.

CRISIS OF 1857—RENEWAL OF THE BANK’S CONCESSION.

THE Second Empire succeeded the Republic. In consideration of the help that had been obtained from the Bank, the Imperial Government waived the right conferred by the Act of June 30, 1840, to terminate the concession in 1855, and went so far as to pay off the State’s indebtedness to the Bank. The first years of the Empire were marked by vast development in the way of public enterprises. Immense sums were raised for the construction of railway, then in its infancy, for Government loans, and for the prosecution of the Crimean War, and the Bank supplied a goodly share of the money thus absorbed. The dwindling of its cash soon caused disquietude. Repeating its former mistakes, the Bank bought a great deal of gold and silver at high premiums. The coin thus expensively acquired was frequently withdrawn to-morrow by the seller of to-day, and so merely passed rapidly through the Bank. The Bank did not yet comprehend, or rather had not the courage to employ the only effective agency for the defence of its reserve—namely, an increase of the discount rate. Consequently it carried alone the burden of embarrassments that were not of its making. It resolved to ask the Government, by way of compensation, for a renewal of the concession ten years in advance of the date of its expiration. The request was well received by the Government, which characteristically found in this application a convenient opportunity to contract for a loan. The extension proposal was submitted to the Legislature and agreed to without serious discussion. It became law on June 9, 1857. This measure conferred real boons on the Bank. First, it was given an assured existence of thirty years, in addition to the ten years it still had to run. Second, it was granted the right to charge in excess of the six per cent. rate in its operations, if the circumstances should make such a course necessary. The Bank’s failure previously to apply that remedy had left it no other alternative in critical circumstances than the refusal of loans with somewhat remote periods of maturity, which was an intolerable inconvenience to the mercantile public. On the other hand, these advantages were purchased rather dearly. The Bank’s capital was doubled, amounting to 182,500,000 francs (at which figure it stands to-day). The price for new shares (preference subscription rights being reserved to existing shareholders) was made 1100 francs—1000 francs principal and 100 francs premium, the premium to go into the reserve. The subscription yielded 101,375,000 francs, of which 100,000,000 francs were handed over to the State for three per cent. consols, disposed of to the Bank at seventy-five, although consols of the same issue then sold in the open market at seventy-one. All profits accruing from increases of the discount rate above six per cent. were to be deducted from the surplusage intended for division amongst shareholders, and to be added to the reserve fund. The Government claimed the right to require the Bank to establish at least one branch for each Department, dating from June 30, 1867. Finally, the Treasury obtained a loan of sixty millions on terms which will be recited in another chapter. By the workings of the new rule concerning the discount rate, the Bank was able to furnish great assistance to business establishments during the terrible cataclysm of 1857, and exercised a powerful influence for the abatement of that panic.

THE BANK HELPS RAILROAD BUILDING.

In 1858 the Bank afforded valuable service to the country, adding much to the general resources and prosperity, although the facts are little known.

The railways had made heavy drains upon the hoardings of the people for original construction purposes and for the completion of their system. The public was not very well instructed about the merits of the three per cent. bonds, and subscribed for them but meagerly and at low prices. To prevent sacrifices of value on bonds which the railway companies were obliged, by the immediate need of money for continuing work, to offer at any price, the Bank guaranteed the current expenses of the companies, and undertook to negotiate the bonds on its own responsibility. By its co-operation in the matter, the Bank of France (whose prudence was understood by everybody) was instrumental in inspiring confidence among capitalists and inducing them to take the railway bonds with greater alacrity. From 1858 to 1861, the Bank sold 3,419,919 lots at figures estimated to aggregate 1,028,900,000 francs above what the railway companies could have obtained independently.

THE BANK’S TRIALS IN 1860-1864.

The Bank again had to pass through times of trial in 1860 and 1864. The annoyances of the latter year were brought about by the American Civil War and the disorganization of the cotton market. On the authority of the Act of 1857, the Bank did not hesitate to give the discount rate a wide range, according to circumstances. This caused great discontent among borrowers. The press started a controversy on the subject, alleging that the Bank, if not chargeable with deliberately bringing about financial crises for its own profit, at least made itself a party to them by its incapacity. A singular theory, which still is advanced from time to time, found considerable advocacy. It was argued that the Bank could, if willing to do so, give credit gratuitously, or almost so; that improvising its own money by manufacturing notes which have no intrinsic value, it could grant credit at one-half, one-quarter, or one-eighth per cent., or even less, and still do a magnificent business. The discussion went so far that the management of the Bank demanded a Government inquiry in relation to the credit question. The opinions of all classes were consulted in this investigation. The representatives of the Bank found no trouble in demonstrating that it had nothing to do with the causes of such disasters; that they always resulted from perfectly well indicated economic conditions; that it was not the province of a credit institution to seek to prevent them—which was beyond every power—but to help abate them and ameliorate their severe consequences as much as possible, and that the theory of gratuitous, or almost gratuitous, credit was Utopian. Another thing conclusively shown was, that the bank did not exercise, and could not safely exercise, any option of issuing paper currency except with strict regard to its coin funds; and that any attempt to arbitrarily put forth notes inconvertible into metal would plunge the nation into the pit of paper money whose depreciation knows no limit. These arguments made an impression upon the enlightened portion of the public; and the inquiry not only ended in full justice to the Bank but also proved permanently useful in spreading throughout France sound principles respecting credit. The entire movement thus counteracted was really, in its fundamentals, an assault on the Bank of France.

In 1860, when Savoy was annexed to the French Empire, there existed an institution styled the Bank of Savoy, which had the right to issue notes payable to bearer in all the cities of the State of Sardinia. The agreement of August 23, 1860, between France and Italy, included the following stipulation: “The bank established at Annecy shall continue to enjoy in Savoy those rights and privileges which have been conceded to it, on condition that it fulfills all the obligations that have been imposed upon it.” On the basis of this understanding, the Bank of Savoy, on September 6, 1860, addressed to the Emperor a petition asking for formal sanction of the rights acquired under Sardinian rule, and adding that the position of the bank had become strengthened in view of the superior importance of France as compared with Piedmont. The matter remained in abeyance. In reality, the Bank of Savoy desired consolidation with the Bank of France, on terms similar to those which had been conceded to the Departmental banks, and it hoped to bring the Bank of France to a favorable attitude by the threat of opposition. The undertaking failed, and in 1863 the Bank of Savoy resolved to increase its capital from four to forty millions. Immediately the Government Commissioner protested against the vote of the Assembly. Solution of the difficulty became urgent, and, finally, the Bank of France decided to buy up the institution for four millions. In place of the Bank of Savoy, two branches of the Bank of France were created—at Annecy and Chambéry. The last years of the Empire were particularly calm from the economic point of view, and the history of the Bank offers nothing specially noteworthy in that period. Its sphere was constantly enlarging, and now a solidity and a might were to be revealed of which the Bank itself was not conscious.

THE BANK AND THE FRANCO-GERMAN WAR.

The Franco-Prussian War broke out with suddenness on July 15, 1870. From the beginning of hostilities, coin was in great demand, partly for the requirements of the army and partly for Treasury replenishment. The discount rate, which stood at two and a half, rose in rapid stages to six per cent. Rumors were bruited about that the money-changers and bankers were shipping gold to Prussia. The populace was incensed by these reports, and compelled the Government to put a stop, by police measures, to all exportations of the precious metals. The financial journalists demanded a forced bank-note currency, to prevent the outflow of gold. These extravagances operated to check the circulation of money of every kind and to precipitate the calamity. Unfortunately, the forced currency of the journalists became reality. As a consequence of the German army’s invasion of French territory, collections on commercial paper in the occupied districts became impossible. By an Act of August 11, 1870, the time in which unpaid notes were to go to protest was extended thirty days. As this measure was not capable of merely partial application, its provisions were extended to cover the whole of France. As the Bank could no longer rely upon collections on commercial paper held to secure the redemption of its currency, it came under the régime of forced currency, which it had not asked for, but which was indispensable alike for commerce and the State. The law of August 12, 1870, discharged the Bank from the obligation to redeem its notes, and ordered that they should be accepted by citizens and in the public offices as legal tender. The maximum paper issued was fixed at 1,800,000,000 francs. Two days later this limit was raised to 2,400,000,000 francs. The German army pursued its victorious march on Paris, which was to sustain a siege. A portion of the Government of the National Defence left the capital, in order to place itself in position for keeping in communication with the country at large. The Bank deputized one of its under-governors, M. Cuvier, to manage the branches and to conduct the necessary intercourse with the Government. This latter function, it was apparent, would become extremely delicate and onerous. Before the closing up of Paris, the Bank had granted to the Treasury, independently of the permanent loan of sixty millions, a first loan of fifty millions, a second of seventy-five millions, and a third of forty millions for the savings-bank service.

The delegation of the Government of the National Defence, harassed by the most critical circumstances, needed financial help. It applied to M. Cuvier, who responded with memorable firmness: “I do not misconceive your terrible situation. I know that you require money. But consider that to-day the Bank is the only and the last resource; if you exhaust it there will be nothing left. Notwithstanding our misfortunes, the signature of the Bank of France is still honored abroad. Make use of it. Undoubtedly you will have to pay exorbitantly, but that is preferable to the ruin of the Bank.” These counsels, so full of good sense, were listened to by Gambetta with scant patience; but they appealed to the other members of the Government. The result was that a loan known as the Morgan loan was contracted in London (October 24, 1870), for 250,000,000 francs, which yielded a net amount of 204,000,000 francs. The Morgan loan was soon consumed, and the calls upon the Bank became increasingly urgent. They were accompanied, moreover, with the most violent threats. The Bank defended every foot of ground, granting only the most unavoidable demands. Yet, when the armistice was concluded, the State owed the Bank four hundred and seventy-five millions. Then it was realized how characterized by foresight and profound patriotism M. Cuvier’s resistance had been. All the resources of France had been paralyzed. Taxes were forthcoming from only half the country. The public needs were distressing. Yet the Bank had satisfied all, placing at the disposal of the nation fifteen hundred and thirty millions, without failing for one moment in its special duty to succor and sustain trade. It emerged, with credit intact, from the most formidable test that any institution of its kind had ever been forced to endure. The resolution displayed by M. Cuvier in his dealings with the Government of the National Defence was well matched by the vigor with which his colleague, the Marquis de Ploeüc, maintained his position against the Commune in Paris.

THE BANK AND THE COMMUNE.

On March 18, 1871, the Bank was left isolated and without any means of protection amidst the most desperate insurrection of history. It had in its vaults in bonds and cash, more than three milliards (3,000,000,000) belonging to the public. Everything was to be feared from an unrestrainable mob, given over to the worst passions. The Marquis de Ploeüc took a bold stand in this emergency. The attachés of the Bank, who had been organized in accordance with military discipline during the siege of Paris, kept guard night and day, with absolute devotion, over the institution and the wealth confided to its honor. It is just to mention that relations of some satisfactoriness between the Bank and the Commune were singularly facilitated by the course of one Citizen Beslay, whom the Commune had placed at the Bank as its representative. This Beslay, an erratic and visionary individual, but an honest man, foresaw the fearful consequences of a pillage of the Bank, and opposed himself energetically to all the attempts that the Commune made to introduce its men into the establishment. The Communistic Government, which was without resources, extracted from the Bank several millions, and used the money to provide for its pressing wants. It comprehended that if the Bank should be emptied there would be no funds obtainable to feed the insurrectionary hordes, which would thereupon hold its leaders responsible for their distress. Accordingly, the Bank was spared. The withdrawals made by the Commune aggregate, in round numbers, only seventeen millions.

The period whose history we have briefly traced was the culminating stage of the career of the Bank of France. Never before, in any country, had there been afforded a like example of an institution exercising such power, inspiring such implicit confidence, contributing so decisively to the recovery of a people that seemed crushed, performing more than its duty with impressive grandeur and simplicity. “The Bank,” said M. Thiers, in a memorable speech, “has saved the country because it is not a State bank.” This remark was eminently true. In that supreme struggle a State bank would not have been able to resist the exactions of the Government, and its credit would have become confused with the credit of the State. When the Bank of France issued notes secured by Treasury obligations, it added its own guaranty to that of the State, and the paper circulated consequently at par. If the Bank and the Government had been one and the same, the Bank’s signature would have been no reinforcement of the State’s, and the paper intended to have been taken on trust would have been valued at just what the State’s credit was worth. The experience gained by the Bank of France in 1870 and 1871 is conclusive demonstration of the absolute necessity of assigning the responsibility for issuing paper money to independent institutions, subject to such conditions of supervision and regulation as should incontestably be administered by the Government. This experience has not been without important practical results. On the occasion of the latest renewal of the concession of the German Imperial Bank, it was especially invoked by the German Government. The French may rightly take pride in that signal display of appreciation by their former foes for their chief financial institution.

CALM AND RECUPERATION—THEN SPECULATION AND CRISIS.

After the Bank had recovered from the awful shock, it entered upon another era of calm, during which it reorganized its cash reserve and made preparations to put an end to the forced currency—preparations that were brought to final success on January 1, 1878. Meantime, the Bank completed its network of branches by introducing sub-offices in all Departments not already provided. This tranquil era lasted until 1882.

In consequence of the great accumulations of capital during that period of relative quiet, speculation became rife. It was at first particularly directed toward the values of insurance companies; but in that narrow market exhaustion was soon reached and another field had to be sought. Innumerable credit societies were founded. The most conspicuous was the Union Générale, which made ultra-religious pretensions and found most willing clients among the Catholics. Managed with extreme boldness, it established branches everywhere, and quickly became the central attraction of the market. All values rose with astounding rapidity, and France was brought back to the memories of Law’s bank. The first symptoms of the collapse manifested themselves toward the end of 1881. In the beginning of January, 1882, the unchanged market showed signs of reaction, and the highly feverish conditions became plainly apparent. Nevertheless, the public retained its illusions until February. On the first day of that month the directors of the Union Générale were arrested, and on the next the institution failed. Panic took the place of confidence, everything depreciated, the majority of the banks were shaken, and the animation of the previous years was replaced by absolute torpor. The Bank of France, faithful to its traditions, came to the rescue of the cities where ruin was imminent. In Paris, it advanced eighty millions, and in Lyons one hundred millions, enabling the business public to meet their obligations.

THE BANK AND THE COPPER “CORNER.”

It was not until the spring of 1889 that the next notable episode occurred in the history of the Bank. In 1888 a financier had conceived the project of “cornering” the copper market. He had concluded contracts with the principal mines of the world, by which they had engaged to limit their production in consideration of his agreement to buy their total output. This speculation was similar to the one undertaken in relation to cotton, 1836-39, by Biddle, Director of the Bank of the United States, which brought about the destruction of that institution. An old and honorable Paris banking house, the Comptoir d’Escompte, supplied the funds necessary for the operations by discounting copper warrants. The prices of the metal rose swiftly, but the mines that were not interested in the contract, and those that had suspended work on account of unremunerativeness, took advantage of the new state of affairs and threw large quantities of copper on the market. This led to a decline in prices. The Comptoir d’Escompte, deeply involved in the enterprise because of the warrants that it held and the direct advances made, found itself seriously menaced. Its chief, M. Denfort Rocherau, appalled by his responsibilities, killed himself. At once panic seized the numerous depositors of the Comptoir d’Escompte, and they rushed to withdraw their deposits. The assets of the bank were of a solid kind, but they could not be converted into cash, and no one knew their amount. Refusal of payments to depositors would have caused the greatest misfortunes and paralyzed the business of Paris. The Minister of Finance recognized the danger, and called on the Bank of France for aid; whereupon the Bank consented to make an advance of two hundred millions upon the guaranty of the principal banking and credit establishments of Paris. The conditions of this arrangement provided for repayment of deposits and for taking the assets and realizing on them to the best advantage. A precipitate liquidation would have seriously compromised matters. Finally, the Comptoir d’Escompte was put in position to pay all its creditors, and even to return to its shareholders part of their capital.

For the valuable and discreet services thus volunteered and executed by the Bank, due gratitude was publicly manifested. The various Chambers of Commerce voted thanks to the Bank; and the Government, in 1889, seconding the expressions of public appreciation, announced that it would proceed to consider the subject of extending the Bank’s concession, which was to expire on the 31st of December, 1897. After a rather protracted delay, a bill was brought in by the Government continuing the privileges of the Bank to December 31, 1920. For this solitary advantage, the Bank was to pay to the State a rental, or “gratification,” of 1,700,000 francs per annum, which was to be increased in 1898 to 2,500,000 francs; was to place at the Treasury’s disposal, without interest, the sum of 180,000,000 francs; was to perform, free of charge, all that the State might require in the way of handling its funds; was to give its services (likewise without charge) in disposing of all issues of Government consols; and was finally to establish new and additional branches. The Bank accepted all these terms, which were made still more exacting by the commission charged with the duty of reviewing the proposed contract. At last, June 21, 1892, the measure came up for discussion in the Chamber of Deputies. There, it was violently attacked by the Socialist orators, who especially found the specified yearly rental to be inadequate. They demanded the instituting of a State bank, which should vouchsafe credit free, or substantially free.

Amid the plaudits of the majority of the Chamber, M. Bardeau (who had charge of the bill), supported by M. Léon Say, demonstrated that the burdens imposed upon the Bank by the plan under debate represented the maximum of what could be reasonably asked, and went as far toward the Utopia of a gratuitous or almost gratuitous credit as could be tolerated. The general debate lasted until July 6, 1892. On that day it was interrupted, and ever since the measure has remained in abeyance, neither the Chamber nor the Government showing any indication to take it up anew. Meantime, the Bank has not suffered itself to become enfeebled in view of the uncertainties of the morrow, and has pursued the even tenor of its way, developing steadily its service and its strength. Even in the event that a State bank should take its place, it will remain none the less the oldest credit establishment in France, and will continue, with its deposits and its cheques, the work that it has known so well how to perform with its currency during nearly a century, to the great advantage of the country.

SECTION III.

ADMINISTRATIVE ORGANIZATION OF THE BANK.

IN our historical survey of the Bank of France we have made incidental reference to its organization; that feature of the institution, however, demands more detailed treatment.

The Bank is a private institution, whose capital is contributed by shareholders. The capital consists of 182,500 shares, of a par value of 1000 francs each. Taking into account its reserve fund and real estate, each share has an intrinsic value of about 2000 francs. The shares are registered in the names of certain individuals, who acquire proprietary title by transfer on the books of the Bank. Shares may be applied for pupillary investments (i. e., for minors and orphans), for investment in behalf of persons under guardianship, for the benefit of married women under separate dowry arrangements, and may even receive the qualifications of real estate. Dividends are payable semi-annually. The shareholders are formally represented by a body consisting of the two hundred largest owners of shares, all of whom must be French citizens, and be registered in the shareholders’ lists for upwards of six months. This body constitutes a General Assembly, which meets in Paris annually on the last Thursday of January. Each shareholder has only one vote, regardless of the number of shares he possesses. Every person belonging to the General Assembly must appear and vote individually, without proxy privileges. Women are not admitted to these privileges. The Assembly listens to the report of the operations for the year, and selects the regents and censors.

REGENTS AND CENSORS.

There are fifteen regents and three censors. Five regents and all the censors are from the manufacturing and commercial classes, and three of the regents must be chosen from among the officials of the Treasury General Disbursement office. The regents are elected for five years, the censors for three years. Both may be re-elected at the expiration of their terms of office. Each of the regents and censors must own not less than thirty shares, which are non-transferable during their official incumbency. They receive no remuneration, aside from vouchers certifying their attendance, which entitle each of them to twenty-four francs.

GOVERNOR AND SUB-GOVERNORS.

The general direction of all the affairs of the Bank is intrusted to a governor and two assistants called under-governors. The governor and under-governors are appointed by the chief of the State. Before assuming his functions the governor must prove his possession of one hundred shares, and each under-governor must verify in fifty shares. They take their oath of office from the President of the Republic, swearing that they will direct the affairs of the Bank well and faithfully, according to the laws and regulations of the institution. The governor has a yearly salary of 60,000 francs; the under-governors 30,000 francs each. These salaries are paid by the Bank, which also provides residences and their furnishings. The governor and under-governors are prohibited from presenting for discount at the Bank any paper belonging to them or bearing their signatures. No paper can be discounted unless approved by the governor. He also appoints and dismisses the employees; has the sole power to sign drafts in the name of the Bank; signs contracts and correspondence; and appears in behalf of the regents in all matters at law against or for the Bank.

THE GENERAL COUNCIL.

The General Council is composed of the governor, the under-governors, the regents, and the censors, the governor being the presiding officer. The governor, under-governors, and regents have authority to vote on all questions; the censors, acting as comptrollers of the Bank, have only advisory votes. The General Council has regular meetings every Thursday. It receives information respecting all the affairs of the Bank; investigates all departments of the establishment; decides upon agreements and contracts; determines questions concerning the issuance or withdrawal of bank notes; fixes the rate of discount, and annually votes the budget of the Bank and submits the required statement to the shareholders. No action of the General Council can be put into effect unless bearing the governor’s signature. No question can be put to vote unless ten members of the Council having full voting power, together with one censor, are present. All proposed issues of paper money must be with the approval of the censors. The censors have the right to call extraordinary meetings of the General Assembly of the shareholders; but such calls can only take effect when approved by the regents. Other rights and duties of the censors are to make any proposals which they deem useful for the interests of the Bank, to watch over the execution of the laws and regulations, and to give an account of such supervision to the General Assembly.

COMMITTEES.

The fifteen regents and three censors are constituted into seven committees to exercise the details of supervision over the transactions of the Bank, as follows: Discount Committee, Bank-note Committee, Committee on Books and Commercial Paper, Cash Committee, Committee on Relations with the Public Treasury, Committee on Branch Establishments, and Committee on Verification of Bond Deposits. The Discount Committee is changed every fortnight, the Cash Committee each month. All the other committees are reorganized at the end of six months by a process of rotation among the regents. The censors participate in the proceedings of the committees on bank notes and on books and commercial paper.

DISCOUNT COUNCIL.

In order to pass upon the merits of paper presented for discount, there is a Discount Council of twelve members, selected from among the merchants of Paris. They are nominated for a term of three years, by the censors, from a list of thirty-six presented by the regents. These twelve members are, each in his turn, designated to serve in connection with the Discount Committee, wherein they have deliberative votes. Their office is unsalaried, except that each member receives a fee of twenty-four francs for attendance at meetings. No one can be eligible to membership unless he owns ten shares in the Bank, which he cannot sell during his tenure of office.

BRANCH BANKS AND SUBSIDIARY OFFICES.

The Bank, in compliance with the provisions of the Act of June 9, 1857, possesses at least one branch in every Department of France. Besides its branches, the Bank has, on its own initiative, created subsidiary offices in towns where it would prove too costly to operate regular branches. These subsidiary offices serve the same purposes as the branches, whereto they are simply attachments. In certain towns, where the Bank maintains neither branches nor subsidiary establishments, it conducts “collection bureaus,” dependent upon the nearest branches or subsidiary offices. The collection bureaus are intended for the discounting of paper in the town in question, and are open each fifth day. The towns to which such accommodations are furnished are called “attached towns.” When the collection bureau does business for several towns jointly, the latter are styled “associated towns.” The branches are under the immediate direction of the Bank, and may be regarded as duplicates of the Bank in miniature. Their accounts are consolidated with those of the Bank, their budget is fixed by the General Council, and their staff is appointed and subject to removal by the governor. Their transactions are identical with those of the Bank of France. The director of each branch is designated by decree by the President of the Republic, upon the report of the Minister of Finance, from a list of three candidates nominated to the President by the governor of the Bank. Every director must verify in fifteen shares of the Bank, which cannot be transferred while he remains in office. The director carries out the decisions of the General Council, and acts in accordance with instructions received from the governor. He signs the correspondence of the branch and its other instruments, and he appears in court proceedings in the name of the regents at the request of the governor. The director is assisted by an Administrative Council, composed of six members at least and twelve at most, besides three censors. The administrators are nominated by the governor from a list of double the number presented by the regents. The censors are appointed by the regents. The duration of office of administrators and censors is three years, and they may be re-elected. They have no salary, but are paid twelve francs apiece for each attendance. Each administrator and censor must own four shares of the Bank. The director, administrators, and censors form a Council of Administration, in which the director is the presiding officer. This council keeps under supervision all the departments of the branch, proposes the annual budget of expenses, and sees to the execution of the laws and regulations. No paper can be discounted except on the recommendation of the administrators and the approval of the director. The council meets twice a month, and receives reports concerning all the business of the branch. Its doings cannot become of effect unless signed by the director. The administrators form three committees, namely, the Cash Committee, the Committee on Books and Commercial Paper, and the Discount Committee. The Minister of Finance may instruct the Inspectors of the Finances to verify matters in connection with the branches.

The subsidiary offices, which have been established without express statutory provisions, have a most simple organization. Each is directed by a chief of the subsidiary office, assisted by a cash clerk. These agents are appointed by the governor, and are placed under the immediate authority of the director of the branch of which the subsidiary office is a dependency. All paper presented for discount at a subsidiary office is at once forwarded to the corresponding branch, which throws out whatever is to be rejected. Such is the administrative machinery of the Bank of France. It should be added that all cases of violations of the laws and regulations applying to the Bank, and cases of dispute between the Bank management and its staff, are subject to the decision of the Council of State.

STAFF OF THE BANK.

The staff of the Bank, appointed by the governor, consists, so far as the main establishment in Paris is concerned, of four principal chiefs—a secretary-general, comptroller-general, chief cashier and secretary of the General Council; to whose number are added the chief individuals intrusted with the management of the different offices. These various heads of departments have under their authority assistants, besides chief clerks and accountants of four classes, graded according to salary. The Bank also employs a large number of collection messengers, cash messengers, office factotums, guards, porters, and men and women workpeople engaged in the manufacture and handling of the bank notes and the cash and other property on deposit.

In the branches of the Bank the staff embraces a director, cashier, bookkeeper, clerks and messenger, according to the requirements of the service. The branches are under the supervision of inspectors chosen from the staff. The regular staff of both Bank and branches is recruited, principally in a competitive way, from candidates not younger than nineteen nor older than thirty. Those who have successfully stood the examinations are appointed to vacancies according to merit. Each employee is entitled, after thirty years of service, to a pension equivalent to one-half the salary received during the last three years of service, which reverts to his widow or minor children. The pension service is provided for partly by a reserve of two per cent. deducted from salaries, and partly by the liberality of the Bank.

SECTION IV.

OPERATIONS OF THE BANK.

OPEN ACCOUNTS.

THE operations of the Bank have a quality of extreme simplicity. They may be stated under two heads; services obtainable by certain persons only, and services available for the public at large. The Bank receives, on open account, without interest, such sums as may be paid in by individuals and private or public establishments. Certain of these accounts entitle the Bank’s clients to the privilege of discounting paper; others allow nothing more than the depositing of funds and incidental conveniences. The deposits on open account are not subject to “stoppage of payment.” The Bank inquires respecting the solvency and reputation of everyone wishing to open an account. It requires that an application be addressed to the governor, which must be accompanied with the signatures of three known persons, from whom its representatives thereupon seek information. If the inquiry proves satisfactory, the petition is submitted to the General Council, which rejects the application or pronounces the account open. No minimum deposit or minimum balance is exacted. With the opening of the account, privileges are conceded as follows: Funds deposited in the Bank may be drawn upon by drafts or cheques payable in Paris, or at the branches or subsidiary offices. The service of cheques and drafts from place to place is free, if they are intended to transfer money on which the Bank has already charged a commission, and if they are drawn within five days after such profitable transaction by the Bank. Otherwise a commission of .05 per cent. is charged, with a minimum of fifty centimes. The next privileges are to make notes and acceptances payable at the Bank; to pay by cheques or transfers for notes presented by the Bank messengers at maturity; to be credited for transfer vouchers obtained from other accounts or even from third parties having no open accounts; to be credited with advances on stocks, etc.; with dividends on stocks deposited at the Bank, and with dividends on the Bank’s shares, and to have paper collected or discounted. The following is a statement of the open accounts of the Bank in each of a series of years from 1810 to 1894, inclusive:

OPEN DISCOUNT ACCOUNTS.

In addition, the Bank opens current discount accounts, for persons who do not reside in localities having a branch or subsidiary office. These accounts are operated like the regular ones above described, excepting that all transactions are made by correspondence. The holders of open accounts having the privilege of discount may present commercial paper, merchandise warrants, and cheques on cities where the Bank has branches or subsidiary offices, and on “attached towns”; but in the case of “attached towns” only paper maturing on the 5th, 10th, 15th, 20th, or last day of the month is admitted. Notes and warrants must not have more than three months to run; the former must bear three signatures, the latter, two at least. The rate of discount is uniform for all paper and at all places. It is charged for a minimum of five days’ interest for paper drawn on Paris and the branch towns, and eight days’ for paper payable at places other than the place of presentation. The following are the statistics of the Bank’s discount operations for each year of the eighteen enumerated, extending from 1810 to 1894:

The discount rate of the Bank of France has been distinguished from that of all other great banks by its stability and moderateness. The following comparison shows its fluctuations during the past ten years:

Account-holders may deliver to the Bank for collection paper of any description which has no more than five days to run, and have its proceeds placed to their credit after the deduction of a slight commission. For many years the Bank performed this service free, but the business in connection with it developed to such an extent as to be burdensome, and so it was needful to institute a certain collection rate. Since the beginning of the year 1895, it has permitted the opening of deposit accounts, without investigation, by all persons making requests in writing. Such deposit accounts are treated the same as the ordinary open accounts, with the exceptions that they cannot be used for transfers, and that the amounts carried to the credit of depositors become liable to the stoppage-of-payments clause. The rule prohibiting transfers (from one account to another) has for its object to distinguish deposit accounts from open accounts, and to bring the former within the pale of the common law. If the legal provision making open accounts non-seizable should be abrogated, the Bank would have no further reason to retain the restrictions that it has been obliged to adopt.

LOANS AGAINST COLLATERAL SECURITY.

The Bank makes advances upon stocks free of commission. The only formality upon which loans depend is that the applicant’s signature must be certified to by a person of known standing. The properties recognized as legitimate guarantys for advances are determined upon by the General Council; but its determinations must be approved by a decree of the President of the Republic. Advances are allowable only on certain French properties, or such as are of a dependent nature—for example, the Tunis bonds. The rates of advance to deposited security vary according to the character of the bonds. etc., amounting to eighty per cent. for State funds and seventy-five per cent. for Department bonds or for municipal or Chamber of Commerce obligations. Railway bonds and shares are pledgeable for sixty per cent. in cases where they earn income. All the percentages, however, depend upon the current quotations. The minimum loan is 250 francs, and no loans are made for less than a fortnight or longer than three months. At the expiration of three months, the loan can be renewed by simply paying interest, and the process may be repeated indefinitely. The rate for loans is higher than that for discounts, ranging from one-half to one per cent. higher. This is to prevent borrowers from speculating on the difference between the rate of the Bank of France and the exchange reports. The Bank keeps and gratuitously looks after the securities which it holds against loans. It opens special accounts for advances without any formality except written request. When these accounts show a credit in favor of the individuals, they may draw on them by transfer and cheque; they may repay the loans at any time, but a minimum interest of five days is charged on all sums advanced. The provisions as to character of securities acceptable and rates of valuation allowed are the same as in the cases of simple loans. While the Bank undertakes to keep and take charge of stocks gratuitously, accounts that have not previously been profitable to the institution are required to pay for such service.

The statement following shows the yearly amounts of the loans of the Bank, excluding those to the State, for a series of years extending from 1835 to 1894:

MISCELLANEOUS FUNCTIONS OF THE BANK.

In Paris and at several of its branches the Bank gives advances on foreign moneys and on gold and silver bullion at the rate of one per cent. annually. The minimum term of such loans is for thirty-six days, with interest, which is at once deducted from the sum advanced. Loans may be continued beyond that period, but after the thirty-six days interest is due only per diem. The smallest loan given is 10,000 francs. These loans on bullion and money constitute a rather important item in the transactions of the Bank.

The Bank receives on free deposit values of every nature, charging trust fees. Stocks and like instruments are received at the windows of the Bank and all its branches and subsidiary offices, but are retained for safe-keeping only at Paris, Bordeaux, Lille, or Marseilles, these being the only cities that have a system of safes adapted for the purpose. The depositor is given a receipt for each delivery. Deposit receipts are not transferable by indorsement.

The Bank collects the dividends and interest coupons on the instruments on deposit. The accrued income is credited to the account of the owner; it may be paid to him at any branch or subsidiary office, and may even be mailed to him. The Bank also cares for collections of income on foreign bonds deposited at Paris; undertakes to collect bonds called in; makes payments on assessed stocks; exchanges stock certificates, and attends to stamping formalities on securities.

Agreeably to an arrangement with the Russian Government, any holder of Russian public funds may deposit them without charge at the Bank, and the certificates of such deposit will be valid for the value of the stocks represented. This arrangement is designed to neutralize the inconvenience resulting from Russian laws on the subject of lost or stolen negotiable property. The Bank also engages to sell and purchase stocks on ’Change for cash, or on the security of a deposit of stocks, or on a margin.

The Bank receives coin on deposit from any person, and gives a receipt payable on presentation, but not transferable by indorsement, the coin being returnable only to the depositor individually or to the person holding his power of attorney. It also receives in trust diamonds, and accepts in transit packages of the precious metals coming from abroad, which it surrenders to the consignees on bills of lading. At Paris, at the branches, and at the subsidiary offices, bills of exchange to order are signed, which the Bank sells at a commission of five centimes per 100 francs to those who wish to make transfers of accounts to towns having affiliated establishments. Finally, it buys and sells the precious metals. All transactions not authorized by the laws and regulations are prohibited.

SECTION V.

RELATIONS BETWEEN THE BANK AND THE STATE.

OBLIGATIONS TO THE STATE.

THE Bank is required to issue paper money; it is its duty to keep such issues under constant control, and it must see that the privilege is not abused. These general provisions are thoroughly recognized, but the means of safeguarding them vary. So far as the administration of the institution of the Bank of France is concerned, the State contents itself with reserving the right to appoint the governor and under-governors. The governor, by refusing to sign decisions of the General Council, can prevent their taking effect. This is a practical veto power. He cannot make decisions, but can unmake them. The same result could be obtained if the Government should name the censors and confer on them the right of veto, leaving the shareholders, or rather the regents, free to select at pleasure the persons charged with the executive management. The adoption of this alternative plan was urged by the Bank upon the Government from 1814 to 1820. However, the various factors interested in a wise direction of the Bank have been pretty evenly balanced up to the present time; and, although the State’s influence has occasionally appeared to be unduly predominant, neither injury nor abuse has resulted.

THE TREASURY ACCOUNT OF THE BANK.

Aside from the function of control, the State’s relations with the Bank are not different from those of individuals. The Bank carries an open account with the Treasury, which is in nowise distinguishable in form from the ordinary open accounts of merchants. The Treasury pays into the Bank the funds at its disposal and draws against them as required. The Bank, without charge, receives at its branches State funds, and transfers them to such places as the Minister of Finance may indicate. Lately, all these transactions have been performed gratuitously.

Besides its account current, the Treasury, by a contract of the date June 10, 1857, which is a quasi-adjunct of the act renewing the Bank’s charter, reserves to itself a permanent loan of 60,000,000 francs. The mechanism of that particular loan is rather complicated, and we will explain it somewhat in detail. The Treasury has an open credit of 60,000,000 francs, which it can use at its convenience, in whole or in part, and at any times desired. The Bank holds security for the loan in the shape of vouchers. The rate of interest on that loan is based on the rate for commercial paper, but must not be in excess of three per cent. The Treasury, consequently, enjoys the benefit of all reductions of discount below the three per cent. rate. Moreover, the Treasury’s current discount is regulated by the showing of its credit balance, under the arrangement that, if the Treasury’s credit at the Bank exceeds, or is equal to the advances made by the Bank, the Treasury owes no interest; otherwise, it owes interest on the difference. In 1878, the original loan of 60,000,000 francs was increased by 80,000,000 francs, so that the Treasury has a credit of 140,000,000 francs at its disposal, under conditions that will be explained. The amounts drawn from the additional eighty millions are liable to a maximum interest rate of one per cent. per annum. In order to clear up whatever may be obscure in the foregoing, let us suppose that, on a certain date, the loan account shows a debit of 140,000,000 francs and the current account a credit of 220,000,000 francs; in that case, the Treasury would owe no interest. On the other hand, suppose that, on some other date, there is a loan account debit of 140,000,000 francs and a current account credit of 60,000,000 francs, then the Treasury would owe interest, but only at the rate of one per cent. for the difference of 80,000,000 francs, since the original loan of 60,000,000 francs has not been encroached upon at all. If, however, the Treasury’s debit on its loan account should be 140,000,000 francs, and its credit on its current account only 50,000,000 francs, the difference of 90,000,000 francs would be subdivided into two categories for interest purposes, 80,000,000 francs being chargeable with one per cent. interest and 10,000,000 francs (on account of the original item of 60,000,000 francs credit) with the current interest rate of commercial paper, not to exceed three per cent.

It is probable that when the Bank’s concession is renewed the interest on the 140,000,000 francs will be stopped. This will involve but slight sacrifice for the Bank; for, with the system of compensation as adopted, the interest paid by the State, in the aggregate, is quite insignificant.

CONTRACTS BETWEEN THE TREASURY AND BANK.

The Bank is obliged to render to the State all services which may reasonably be demanded of it. These services, running through the entire period of the Bank’s existence, have been innumerable, and nearly all of them have led to special agreements or contracts. In general, such understandings have been in relation to discounts of Treasury vouchers or loans for more or less extended periods. The proposals of the Government are submitted to the General Council, which accepts them with such modifications as are deemed proper. The most important of all the contracts thus entered into was the one of July 3, 1871, establishing the method of reimbursement for the advances allowed during the war and the insurrection of the Commune. The open credits amounted to 1,530,000,000 francs. They were canceled by annual payments of 200,000,000 francs, interest being fixed at one per cent. Up to the present, the Bank has never been subjected to the necessity of sharing profits with the State or paying a royalty for its concession. Former governments have always taken the position that the privilege of issuing notes was not granted to the Bank in its own interest, but for the advantage of commerce and the State, and that ample recompense for the monopoly was afforded by the undivided responsibility of the privileged institution and the valuable services which it is required to render.

TAXATION OF THE BANK.

The Bank is liable to all taxes that are imposed upon ordinary banking institutions or houses; but it pays no others, unless the stamp duty on the note circulation be considered a special tax. That duty is calculated in the following manner: Each year the Bank determines the average daily amount of its productive transactions (discounts, loans, etc.). The share of average circulation corresponding to the productive operations is taxed at the rate of fifty centimes for each 1000 francs; on all above that figure the tax is only twenty centimes per 1000. The yearly payments of taxes by the Bank, from 1860 to 1894, have been as follows:

SECTION VI.

ADMINISTRATION OF THE CASH FUND AND THE CIRCULATION.

BASIS OF NOTE ISSUES.

A BANK of issue, whatever its functions, has for its first duty the regulation of the paper and coin circulations—the maintenance of the two on a footing of perfect equality. The Bank of France maintains such an equality by a very simple process. It issues notes only as equivalents for commercial paper, or loans on securities or on gold or silver. It is careful in accepting the commercial paper offered, which must be hedged about by all kinds of guarantees; so that it has only small losses to apprehend on this account. Consequently, if the Bank should cease to exist, the liquidation of its affairs could be effected within three months at the outside. It would begin by redeeming its notes with the coin in its vaults; then the commercial paper falling due daily would provide for the redemption of notes issued on the strength of such resources, and, finally, at the end of three months, the supply of coin and the supply of commercial paper would be exhausted, so that not a single bank note would remain in circulation. Of course, it will be answered that, while this is the theory, things would work differently in practice—that, for instance, the signers of commercial paper would not pay at maturity. That case has been foreseen, and in order to provide for such an eventuality, the Bank possesses a capital and a reserve. The capital of the Bank is not carried in the business in cash. It consists of consols. This plan has often been criticised; but it is rational enough. The Bank operates by the means of its notes, which constitute a loan, without interest, given to those who accept them. The security offered is the value of what the Bank has received in exchange for the notes; if that security is sound, the bills are good; but if bad, the Bank must suffer the consequences of its lack of discernment and pay its bills out of its private resources—i. e., by drawing at first upon its reserves and then upon its capital. In this order of things, the capital and reserve are to be regarded as a mere guaranty, and it is but natural to place them in the form of consols, which is the mode of procedure used everywhere in the investment of guaranty funds.

MECHANISM OF THE DOUBLE STANDARD.

The capital and the reserves constitute, in a manner, the invisible security for the bank notes; but the visible security is the coin of the Bank in the first place, and the stock of commercial paper in the second place. The hard cash of the Bank comprises the coin paid in against notes, coin collected on commercial paper, and purchases of gold, which purchases are always effected at par, or at less. The Bank’s coin consists of both gold and silver, which are received by the Bank on precisely the same footing, and serve equally well for payments. Silver is preserved on an exact par with gold in French circulation, and four five-franc silver pieces may be exchanged at any time for a twenty-franc gold piece, notwithstanding the considerable decline in the market value of silver bullion. This phenomenon is easily explained. The quantity of silver in existence in France does not increase, because, since 1878, the coining of silver has been suspended entirely. Thus the actual supply of five-franc silver pieces—which M. Foville estimates at the probable maximum of two milliards (2,000,000,000) of francs—cannot increase, but can only be diminished, in consequence of use and loss, and also in view of the contingency that the Latin Union may be dissolved by giving back to Belgium and Italy their silver coins. These two milliards of silver money are really in excess of the country’s needs. What is not required by the people flows back into the Bank, whose balances show an almost uniform amount of twelve hundred to thirteen hundred millions of silver. It is impossible that the country, with such a disbursing institution as the Bank of France at its service, can ever suffer from either an excessive or an insufficient silver circulation. Silver money has its fixed place in the economy of the country, and although its intrinsic value is at the very best only half its conventional value, it certainly would acquire a premium if it should become disproportionately scarce; in other words, one would, in that event, be obliged to give one twenty-france gold piece and some centimes for four five-franc silver coins. It is really impossible to do without the five-franc silver piece, which is the preferred coin of the country-folk; and neither the five-franc gold piece, which is too light, nor the five-franc bank bill, which is too perishable, could supplant it. Thanks to the limitation which has been placed upon the coinage of silver, and to the protection which the Bank thus enjoys against an over-supply, the silver money easily preserves its standard value. The ability to freely use silver at par relieves the Bank from the necessity of raising its discount rate, as the Bank of England does, when a demand for gold is manifested abroad. As it has the option of redeeming its notes and settling its standing accounts in five-franc silver pieces, it simply exacts a premium for the delivery of gold. Persons who desire to make a profit on gold are the only ones who have to pay in such instances; whereas an increase of the discount rate would affect merchants whose transactions are in notes or credits, the same as bullion-dealers who derive advantage from exportation. This practice of the Bank’s, to be sure, has something arbitrary about it, which is rather offensive at first thought. But when it is considered that a high and permanent premium on gold would be equivalent to a depreciation of paper currency, it will be recognized that while the Bank may counteract certain exchange operations by a defensive premium, it could not, without great injury to itself, and even at the risk of its credit, proclaim the inferiority of its own paper in relation to gold. To sum up: This mechanism of the double standard works to perfection, and has successfully stood the test of a long experience, despite all the criticisms of theorists, because in practice it gives rise to no embarrassment or inconvenience.

MAXIMUM OF THE CIRCULATION.

We cannot say so much about the operations of a legislative programme of comparatively recent enactment. When the forced currency was authorized in 1870, the issues were at first limited to eighteen hundred millions, then twenty-four hundred millions, then twenty-eight hundred millions, and, finally, thirty-two hundred millions. Upon the abolition, in 1878, of the forced currency measure, the Government retained the legal limit of 3,200,000,000 francs, which was afterward raised to thirty-five hundred millions, and later to four thousand millions. In times of forced currency a maximum limit of issue, based on the circumstances of the coin on hand and the probable needs of the public, is absolutely indispensable, since the Bank cannot rely upon the indications of plethoric issue afforded by the return of notes and the exit of coin, but obtains its sole information from the depreciation of notes on the exchanges, and when such intelligence is received the mischief has already been done. For this reason, a limitation, within narrow bounds, of the amount of bank notes that can be thrown into circulation, is needful whenever a forced currency prevails. On the other hand, during normal periods, the notes issued in excess return to the Bank, and the circulation regulates itself automatically without legislative intervention. Accordingly, a provision for a maximum issue of three and one-half or four milliards lacks practical significance and serves no definite purpose. And when the Bank finds itself held to such a limit it can no longer issue notes instead of paying gold, and the public, willy-nilly, has to take metal, to its great discontent, as happened several years ago. Projects for limiting circulation have engaged the imaginations of legislators of all countries—projects to ensure artificially what is brought about naturally. The circulation is always at its natural level when the bank which created it is in condition to redeem its notes; in other words, when the liabilities exactable on demand are covered by available assets.

The legal-tender quality of the notes, or obligation of individuals and public officers to accept them in payment as actual money, dates only from 1870. This is a provision that the Bank has more reason to complain of than to regard with satisfaction, since it gives root, in the public mind, to the idea that if a bank note cannot be refused, the Bank, on the other hand, cannot decline to redeem a counterfeit bill. It would be more advantageous to leave everybody at liberty to take or reject the Bank’s paper, as may appear convenient.

The term “old notes” in the preceding table signifies all notes issued and never returned, which, whatever their age and the probability of their having been destroyed, are always considered to be still in existence. In no case are they declared out of circulation. The Bank does not profit from destroyed or lost notes. If the Bank should be compelled to wind up its business, some period of time would be fixed for the withdrawal of its currency from circulation, and those notes which had not been returned at the expiration of that time would be pronounced void and their value accredited to the State. Everybody’s mind is made up in favor of such a course, although as yet no law exists directing any disposition of the old notes, either for the benefit of the State or that of the Bank. The last plan of renewal of the Bank’s charter prescribed that the amount of the notes of old issues which had not been returned should be paid over to the State, and that in case of presentation of these bills they should be redeemed for the account of the State.

PROFITS ON CIRCULATION.

In looking at the imposing aggregates of the coin and circulation of banks of issue, the thought readily occurs to inexperienced minds that the privilege to make bank notes is something akin to the Philosopher’s stone, and there is temptation to repeat the expression of an Italian economist, that the domain of the ideal and miraculous knows no bounds. The reality, however, is much more prosaic. The bank note is not a creation of wealth, but merely a medium for the representation of values previously established; and unfortunate is the country that loses sight of this elementary truth. A bank’s credit bears no relation to its circulation, except in so far as the individual accepting the note has confidence that the institution has something at its disposal, or which will be ready at short notice, wherewith it can give coin for paper. Taking into consideration all the restrictions, legitimate and necessary, although troublesome, which are placed upon banks of issue, the profits accruing from the power to emit paper currency are, in truth, decidedly unimportant. Estimates of these profits have been made in various countries and by various processes. A correct calculation may be arrived at in the following manner: The circulation of a bank of issue is composed of two distinctive parts—(1) that part with which the bank performs its discount operations, makes its loans and advances, and otherwise transacts business that yields a gain; (2) that part which simply serves the purposes of exchange for coin, and consequently affords no profit. The paper money of the first variety may be styled productive circulation, and that of the second variety unproductive circulation. Let us suppose the average circulation to be three and one-half billions, and the average of discounted paper, advances, etc., eight hundred millions. The bank therefore needs eight hundred millions of notes to transact its business, while twenty-seven hundred millions of notes are passed to the public, not for the bank’s advantage, but for the accommodation of those who prefer paper to coin—an exchange proceeding which brings nothing to the bank, but is, on the other hand, burdensome to it. If the bank had only its own interest in view, it would, by this showing, have only eight hundred millions of notes in circulation. If we suppose the right of note-issuance to be withdrawn, the bank could, instead of using notes, do the same amount of business by attracting deposits of funds and paying therefor a consideration, say of ½ per cent.—the rate that for more than fifteen years has been allowed in France on open accounts repayable at demand. Under such a policy the bank would have to pay ½ per cent. of 800,000,000 francs, or 4,000,000 francs. This figure represents the amount that is saved by notes, and is accordingly the gross profit obtained from the right of issue—from which the cost of manufacturing the notes and the stamp tax on the notes must be deducted.

The following table shows the profits of the Bank of France on its circulation during the last five years, reckoned on the basis of the preceding demonstration:

Thus the value of the privilege amounts to comparatively little in France, and it might even be extinguished completely if the private banks, as the tendency runs, should succeed in doing away with interest on open accounts. Moreover, the profits on circulation are only a minor item of the Bank’s gross profits, as the following figures show:

EXPENSES AND DIVIDENDS.

The running expenses of the Bank are very considerable. It has a numerous staff; it pays, aside from the stamp tax on circulation, all the ordinary taxes to which banks are liable, and it is compelled to maintain branches at a loss; so that when the expenses are placed against the profits, the net results for the shareholders come within tolerable bounds.

ACCOUNTS OF THE BANK.

Aside from the annual report of its transactions, the Bank publishes weekly a balance-sheet, of which the following is a specimen:

Most of the items in this statement are perfectly comprehensible, but a few explanatory remarks may not be superfluous. “Coin in hand” is the total amount of gold and silver specie and gold bullion held by the Bank; it has no silver bullion. The silver of the Bank comprises French, Belgian, Italian, Swiss, and Greek five-franc pieces, and the fractional pieces of the same countries, excepting Italy—Italian small coins having been returned.

“Bills receivable, matured yesterday, payable to-day,” are bills that have not been presented on the day of maturity to the parties having to pay them, and which will be either paid or protested on the day of the statement.

“Paris bills receivable” signifies commercial paper held by the Bank on the day of publication of the balance-sheet. As the regulations of the Bank do not forbid the discounting of paper payable abroad, the Bank, in order to provide for such transactions, has a separate department for “bills receivable, foreign,” which, however, is of importance only in exceptional cases.

The term “Treasury vouchers” will be understood by recalling what we have said in Section V on the relations between the Bank and the State concerning advances made by the Bank to the Treasury for discounts of vouchers. When such discounts are effected, the vouchers on hand constitute the item “Treasury vouchers.”

“Bills receivable of the branches” are the commercial paper of the Bank payable at the branches, subsidiary offices, and attached towns.

“Advances on bullion” are the loans allowed by the Bank on gold bullion and foreign moneys, enabling the holders to take advantage of fluctuations in the market. Such transactions are of little consequence.

“Advances on securities” are the aggregate of current loans, either direct or on open account.

“Advances to the State” figure constantly in the balance-sheet as 140,000,000 francs, representing the permanent loans of sixty and eighty millions already alluded to.

“Income bonds of the reserve fund.”—The Bank, by the provisions of the laws of the 24th Germinal, Year XI, and April 22, 1806, had established a very considerable reserve out of its profits. Various subsequent laws have authorized the distribution of a portion of this, and the statutory reserve has been fixed at ten millions. It is unnecessary to point out that all the income bonds of the Bank figure in the statement at their purchase price, which at times is fifty per cent. below their actual value.

The item “Convertible income” represents the amount of the capital of the Bank, 91,250,000 francs before its doubling, to which are added the profits on that capital yielded by the increase of the discount rate above six per cent. and the remainder of account left at the doubling of the capital in 1857—the latter item being 375,000 francs.

“Inconvertible income.”—The 100,000,000 francs carried in the balance-sheet under this head is the amount placed in income bonds in 1857 in consequence of the doubling of the capital. This item is not to be considered among the available assets, because there has never been any legislative act designating the bonds in question as negotiable.

The “Building and furniture of the Bank” and “Real estate of the branches” are estimated in the statement at much less than their real value on account of allowances made in the sinking fund. It is probable that 40,000,000 francs could be realized by their sale.

The “Expenses of the management of the Bank and branches” are the aggregate of general expenses since the beginning of the year.

“Use of the special reserve.”—This is a special item, originated at the end of 1871, to comprise the exceptional profits of the years following the war, these profits being applied to provide for extraordinary charges that may be cumbersome, and to make up for any insufficiency of dividends.

The item “Divers accounts” represents customers’ accounts not otherwise classified.

The “Liabilities” side of the balance-sheet is headed by “Capital of the Bank.” We have already traced the history of the Bank’s capital and its variations, and shown what part it plays. There is no need to recur to this subject.

“Profits added to the capital” are the profits made out of the increase of the discount rate above six per cent. They have been invested in income bonds, which figure among the convertible income bonds.

“Convertible reserves and special reserves” form the counterpart to the income bonds of the assets. They have served for the old reserves and the reserve established at the end of 1871.

The “Permanent reserve of the Bank” represents the value of the Paris building and its furniture, according to an estimate made in 1834.

“Bank notes in circulation.”—This is the largest item in the liabilities. The maximum aggregate of the notes is fixed by law at four milliards (billions).

“Back interest on transferred or deposited securities.”—The Bank collects gratuitously dividends on securities, and retains the proceeds on account of loans or on deposit, crediting the corresponding accounts accordingly.

“Notes to order and demand receipts, payable in Paris or at the branches.”—The Bank, for a previous consideration and commission, issues notes to order in favor of anybody asking for the privilege, and receives cash on deposit. These transactions are represented by the above item.

The “Treasury account” embraces the remittances or payments made to the credit of the Treasury, either by the Treasury direct or by third parties. The sums carried on that account are always at the Treasury’s disposal, and can be withdrawn in Paris at once or in the provinces after notice.

“Open accounts in Paris and the branches”—the credits of account-holders, whereof they can dispose either by transfers or by cheque without previous notice.

“Dividends due” are dividends on shares of the Bank which have not yet been cashed by the owners.

“Discounts and divers interests” in Paris and the branches are profits realized since the beginning, not taking into account the dividends on income bonds belonging to the Bank.

“Bank discounts of the last six months” stand for a portion of the income during the previous half-year from discounted paper maturing in the current half-year, which income belongs to the profits of the current half-year.

The “Divers accounts” are miscellaneous accounts of comparative unimportance.

ECONOMIC IMPORTANCE OF THE BANK’S BALANCE-SHEET.

The conspicuous rôle of the Bank as a medium of credit in France makes its balance-sheet a document of primary significance. Its varying holdings of commercial paper are more or less indicative of the activity of business. But a study of its accounts as a whole admits of widely different conclusions, which have been discussed with clearness by an economic writer, M. Clément Juglar, and for which the special name of economic meteorology might not inappropriately be coined. M. Juglar has demonstrated, by painstaking observations, (1) that discounts reach their maximum during years of crisis, and are at the minimum in years following the terminations of crises, which he styles years of liquidation; (2) that the coin of the Bank is of minimum amount in years of crisis and of maximum in years of settlement. The author of this treatise has added his observations to M. Juglar’s, and has found that the celerity with which deposited funds of open accounts change hands is at the maximum in years of crisis and at the minimum in years of settlement.

A representation by a system of curved lines of the varying statistics of discounts, coin on hand, and open account transactions gives a very interesting exhibit, exactly similar to barometric charts, from which the prevailing conditions of business may be seen and the probabilities of the future may be forecast as the weather is indicated and prophesied by the barometer. These estimates are general, and are applicable to all countries.

CONCLUSION.

While the Bank of France continues to be by far the most important of French financial institutions, it is not the sole arbiter or the sole dispenser of credit in France. Side by side with it and competing with it, always ready to discount paper as credit institutions, are other banks that have grown and attracted large deposits, which they procure on extremely low terms, thanks to the liberty that they enjoy under quite different conditions than those by which the Bank of France is restricted. They offer a formidable opposition to the Bank, demonstrating that the bank cheque is able to contend victoriously against the bank note, at least in normal times. But when periods of trouble supervene and depositors withdraw their money from the ordinary banks, the Bank of France comes to the front, with its inexhaustible resources, to supply all needs. Its operations, commonplace enough in commonplace eras, become energetic and decisive in emergencies of economic and political distress. Then the Bank is the rock to which all the nation clings. The bank note is accepted in France the same as gold, and even as, in some respects, better than gold. Yet this marvelous instrument is not without its faults. The absolute security that the Bank gives to the holders of its notes, and the aid that it lends liberally to other banks and trade in general, have lulled the public into a kind of sleepy routine. Capital is no longer sought, but flows into the savings-banks, which are managed by the State. Capital, thus diverted, not only takes certain risks, but assumes great responsibilities, instead of fertilizing the country for commerce and industry. Certainly, the Bank of France cannot be reproached with having fulfilled its mission too well; but one may, nevertheless, regret that it operates too much to exempt commerce and banking from the struggle for life. This criticism is not addressed to the Bank, but to public spirit. For the rest, it may well be wished that France might preserve forever the old institution that has served her so long and so beneficially.

[* ] “Each share of the Caisse d’Escompte is registered in the great book (grand livre) of the Republic for 154 livres (francs) annual income, representing a total of 3080 livres. These shares are an item in the pending settlement, which makes them practically worth about 3200 livres each. By the plan proposed, shareholders of the Caisse d’Escompte will transfer this entire value to the bank, with running interest owed by the Treasury, and 200 livres in coin besides. Each share of the Caisse d’Escompte will represent five shares of the bank, but these old shares will constitute a special class enjoying only assured semi-annual interest at the Treasury rate, and are not to participate in the dividends of the bank until after the new subscribers shall have received four per cent. annual dividends, to be distributed among them as a first obligation of the bank’s.”

[† ] The properties to be transferred by the Government and sold by the bank were the “public domains” already alluded to—chiefly the confiscated estates of the Royalists.—Editor.