La BANQUE de FRANCE

La BANQUE de FRANCE the early years

By: Pierre Driessen

Following the coup d’état of 9 November 1799 and his ‘election’ as First Consul of the French Republic, General Napoleon Bonaparte moved quickly to consolidate his power. The previous government, the Directoire, had left France in a desperate situation. It had been corrupt and incapable of dealing with the myriad of political, military, social and economic issues facing the nation, both domestically and internationally. The people were exhausted. Ten years of unrest, war and hardship made them desperate for peace and stability. In Bonaparte they saw their saviour; a man with the force of will and skill, who could deliver them. It gave him a virtual carte blanche.

Napoleon hit the ground running. His was a regime filled with energy from the start. He set about reorganizing all aspects of the government and nation. State finance was one of the first areas to receive his attention. The treasury was empty, government credit was non-existent, specie was scarce, taxes went uncollected and the economy was in a shambles.

State revenues had been supplemented with the plunder, forced loans and reparations from the ‘liberated’ territories in Italy, Holland and Germany, but they proved insufficient. Napoleon himself had shipped wagon loads of money and art treasures to the Directoire in Paris after his victories over Austria and Piedmont in Northern Italy during the campaigns of 1796-97. These only temporarily bolstered government finances.

Napoleon, a keen observer and ever practical, realized that the collapses of the ancien régime of Louis XVI, the various Revolutionary governments and the Diretoire, were by enlarge due to economic and financial weakness. He knew that the success and longevity of his regime depended upon him rectifying these. He adopted and used many of the experiments and experiences of the revolutionary assemblies and the Directoire in trying to deal with financial and economic issues. The difference was that he, being the sole power, could give these the single-minded direction and force his fractious predecessors had been unable.

Napoleon ordered his finance minister Martin Gaudin to reorganize state finances. This would not be easy; any reforms would be haunted by the ghosts of past French state financial management. The experiences of John Law, secrecy of governmental budgets, assignats and Revolutionary government devaluations had ruined government credibility. In addition to introducing a new efficient taxation system, Gaudin recommended the creation of various new financial institutions. The centre piece of these was the Banque de France.

octagonal silver jeton commemorating the founding of the
Banque de France AN VIII (1800)

obverse:
relief: left side shows the Roman Minerva (Greek Pallas Athena) – goddess of the arts, wisdom, education, protectress of industry – dressed as a warrior with helmet and shield. On the crest of the helmet is the owl (Athene noctua), her sacred bird, symbol of intelligence. Minerva’s right hand rests on a shield with the head of a Gorgo, to strike fear into the hearts of enemies. To her right and at her feet is a snake, symbol of eternity. Minerva’s left hand rests on the shoulder of Fortuna, Roman goddess of fortune and luck. Fortuna’s symbols, the wheel and rudder, are behind her. She is pouring money from a cornucopia into a chest, symbolizing the Banque of Paris and in association the state treasury and government.
legend: LA SAGESSE FIXE LA FORTUNE – “WISDOM RESTORES FORTUNE” exergue: name of the engraver Rambert Dumarest (1750 – 1806)

reverse:
wreath of oak (symbolizing strength and long life) and laurel (symbolizing prosperity) The message intended to be conveyed by this jeton is that prudence will govern the management of state finances. This will ensure prosperity.

 

This institution was to be the government’s bank, designed to bring order, stability, integrity and planning to state finances and the currency.2 It was to reduce the problems of borrowing and government dependence upon private, mainly foreign, private banks.3 Unlike the banking systems of Britain and the Netherlands, France’s was virtually non-existent. The few domestic commercial banks in operation were small and severely hampered by governmental, social and religious restrictions. No institution such as the Bank of England existed to market (discount) and regulate government debt securities or the currency. The Banque de France was to fulfill this role.

Although created by the Law of Germinal de l’an XI (18 January 1800), the Banque de France was set up as a joint stock company. The initial share capital of the bank was 30 million francs, divided into shares of 1,000 francs each. Napoleon was its first subscriber, with thirty shares.4 Members of the Bonaparte family also subscribed. The remainder of the shares were held by the leading financiers and merchants of France. This made it a private company, independent of the government.

It was felt that this structure would instill public confidence in the Bank. With private shareholders rather than bureaucrats or politicians in control, the institution would be run on sound financial principles. It would prevent arbitrary government decisions motivated by political considerations which ran contrary to the soundness of France’s state finances and credit reputation. This would safeguard against debasement or inflation of the currency.

The fact that Napoleon was a shareholder gave further confidence, as the First Consul was on record as stating that he was “adamantly against government borrowing”. This assured the public that the new regime would not go down the same path of previous French governments. The Consular government’s resumption of interest payments on official debt in specie, which had been suspended by the Revolutionary and Directoire governments, further reinforced this belief.

The Bank’s main tasks were to:
1) issue bank notes
2) discount commercial bills, with three signatures and durations no more than 90 days (i.e. high quality, very liquid commercial paper).
3) make advances to the government

These were chiefly to aid commerce, foster economic growth and control government spending. In addition it was to help restore and maintain state credit. The Bank’s original Statutes of 13 February 1800, restricted its activities to the City of Paris. This limitation may appear strange, but as students of French society and history know, Paris sets the tone for the nation, more so than any other country’s capital city. Despite all these measures, the public was not won over and the Bank was not able to float all of its shares. Its resources proved to be too small for normal operations. To remedy this, the state Treasury and government departments were ordered to deposit funds with the Bank. It thus gained all the government’s financial transaction business and the financial resources to begin operating properly. The Banque de France had acquired an official character, while in essence being a private corporation.

Bronze medal commemorating the 150th anniversary of
the founding of the Banque de France, 1800 – 1950.

obverse:
relief: left side shows a reclining Fortuna, her right hand resting on a ship’s rudder, while a cornucopia rest in her left arm. Behind her can be seen a ship’s hull. All symbols of prosperity. – right side can be seen a reclining female figure depicting Industry. In her right arm rests a hammer, while in her left hand she holds a compass. Behind her can be seen an anvil and a bee hive. All these are symbols of industry and economic might. Above it all is the right facing laurelled bust of Napoleon Bonaparte as
Augustus. legend: LA BANQUE DE FRANCE exergue: MDCCC – MCML – André Malys (awarded to)

reverse:
is identical to the obverse as found on the silver jeton issued in 1800 found on the previous page.

 

Initially not free from competition, the Bank gradually expanded its power and privileges, differentiating it further from all other French financial institutions. On 14 April 1803 it received its first official charter, granting it the monopoly to issue paper money in Paris for 15 years. In 1808 its notes became legal tender throughout France.

It appeared as though Napoleon would bring about the peoples longed for peace, stability and prosperity. In rapid succession treaties, very favorable to France, were concluded with the various powers she had been at war with since 1791. On 9 February 1801, the Treaty of Luneville was signed with Austria and her allies. March 18, 1801 the Treaty of Florence settled matters with the Kingdom of Naples. That same year the Concordat was concluded with the Papacy. While peace was made with England on 27 March 1801, with the Treaty of Amiens. France was finally at peace with Europe after 10 long years of struggle.

Bonaparte was praised in France and throughout much of Europe as the great peacemaker. France was the dominant power on the European continent. Her borders had been expanded. The struggle and sacrifice of the last 10 years appeared to be paying dividend. Peace allowed Napoleon to concentrate on much needed domestic reforms. His reforming and organizing energies extended to every aspect of French society. Industry and the economy began to recover. Confidence in the government rose and steadily its finances and credit improved. Evidence of this was seen in the rise in the price of government securities and the resultant decrease in the interest it paid on these. The Bank of France benefited from this and appeared to prosper.

Financial reforms, although significant, were hampered by the lack of a well developed banking system and network. Financial and debt (bond) markets were rudimentary. Nothing on the scale and complexity of the British system existed in France. Furthermore, France did not have the long history of transparent government finances, with parliamentary oversight, which its island neighbor had. The memories of devaluations, hyperinflation and the resultant chaos and pain of the last century and especially the prior decade were still fresh in peoples minds. This made those people investing and depositing in France prone to financial panic when the political and military situation changed, even with a man such as Napoleon at the helm. These conditions and the lack of confidence restricted the availability of credit, caused the hoarding of specie and constrained government action. Would the new system and the Banque de France stand the test.

Peace was very short lived and the test came in 1805. The War of the Third Coalition saw France again at war with much of Europe. Investor and depositor sentiment ebbed and flowed with the rumors and news from the front. Money was again hoarded and government bonds fell in price. Stock and financial markets went into freefall. It caused a run on the Banque de France. The Bank’s gold reserves dwindled, forcing it to restrict redemptions of its bank notes. All that saved the situation was Napoleon’s stunning victory over Austria and Russia, at the Battle of Austerlitz (2 December 1805).

Napoleon while in the field was kept abreast of the financial crisis and upon his return took immediate action. Disaster had been narrowly avoided, for the Banque de France was technically bankrupt. Its remaining reserves were less than 3 million francs. Only emergency loans, guarantees from the Treasury and military victory had saved it. Its collapse would have been a catastrophe for Napoleon and his regime.

The governance of the Bank was reorganized. Initially at the annual general meeting of the Bank, open to its 200 largest shareholders, fifteen regents were elected. These sat on the General Council which administered the Bank. In addition the council had three censors whom supervised the Bank’s management. The General Council elected the three member Central Committee, each of whom served as either chairman of the Central Committee, the General Council or the General Meetings.

On 22 April 1806, a new law replaced the Central Committee with a Governor and two Deputy- Governors directly appointed by the Emperor himself (Napoleon had crowned himself emperor 2 December 1804). These appointees came from the Treasury Ministry. These officials controlled and administered the Bank. In 1808 the Imperial Decree of 16 January, set out the “Basic Statutes”, which were to govern the Bank’s operations. These remained in effect until 1936. Within these, the restrictions on the Bank’s area of operations were lifted. It was now free to establish branches – discount offices – in other French cities, as the growth of trade dictated.

This effectively placed the Bank under government control. The official justification for these measures was the supposed collusion, corruption and speculation of certain financiers, merchants and officials, causing the Bank’s near insolvency. The Bank’s management was blamed for not ensuring that sufficient gold reserves were on hand to meet the redemption demands of its bank notes. Some of this is true, as vast fortunes were being made from war profiteering by various financiers and merchants. Also certain government and Bank officials, either by expediency or through incompetence, greed or a combination of these assisted in this and as a result the Bank became overextended. Is this the whole story however ?

Napoleon may have been playing a double game. He viewed all institutions and organs of government as tools to be used for political ends. This can be seen in his reforms in such areas as education, religion and the law. It is true that many of these were great improvements; it must also be stated that they were ultimately designed to serve and enhance the power of the state and his regime.

The reforms in the areas of finance and banking should be viewed in the same light. The events surrounding the founding of the Bank and subsequent episodes point this out.

bronze medal struck to commemorate Napoleon’s
reorganization of the Banque de France

obverse: the right facing laurated bust of Napoleon Bonaparte as Augustus.
legend: NAPOLEON EMPEREUR ET ROI text below truncation of the bust: J. P. DROZ FECIT AN 1809

reverse: a classically dressed woman, possibly the godeess Fortuna, facing left, seated on a plinthe decorated with the French imperial eagle, resting her left arm on a strong box containing two cornucopia. In her right hand she holds an oak branch (symbol of strength and eternity). Behind the plinthe can be seen the attributes of Fortuna, the wheeel and rudder.
legend: LA BANQUE DE FRANCE

 

Some of the most prominent shareholders of the Bank were the same financiers and merchants who bankrolled Napoleon’s return from Egypt and his subsequent coup d’état.

It is entirely plausible that Napoleon had struck a deal with a select group of bankers and merchants. These men may have sought a regime favorable for the creation of their own bank. A bank, which by virtue of its close governmental ties could monopolize the highly profitable business of state debt. They could also influence government policy and legislation, allowing them to limit or suppress competition.

These men may have thought they controlled Napoleon, but they should have known better. The very manner in which the Bank began showed just how ruthless and singleminded Napoleon could be. Initially the Bank had no location for its offices, no resources, no personnel and no customers. To remedy this, Napoleon simply had the renowned financier Ouvrard, head of the Caisse des Comptes Courants (Bank of Current Accounts) imprisoned. Ouvrard was pressured to ‘merge’ with the Banque de France. When the Bank opened for business shortly after its founding, it was in the Caisse’s headquarters.

It should not have come as a surprise that the tables would be turned once Napoleon was sufficiently entrenched, all that was needed was a pretext. This was provided by the chaos of 1805, which Napoleon exploited to gain effective control of the Bank. A crisis which was largely caused by Napoleon’s massive diversion of state funds to the army to prepare for the invasion of Britain. It is interesting to note that most history books about the period treat the creation of the Banque de France as a mere foot note and give it scant mention. They fail to see the importance it had in allowing Napoleon to gain control of state finances, debt and the currency, while maintaining the facade that the Bank was independent and organized along the lines of the Bank of England. Here Napoleon followed in the foot steps of Louis XIV and his brilliant Minister of Finance Colbert in subordinating all and everything to the service of the state.

 

Previously published in the ENS “The Planchet” Magazine Vol-57 Issue-01