The French Franc, June, 1928--February, 1937

FOR nearly four years following the legal stabilization of the franc in I928 gold flowed persistently into the vaults of the Bank of France, and the reserve ratio rose again to the high level which for long before the war it had been the policy of the Bank to maintain. With so ample a reserve the authorities experienced no difficulty in preserving the gold parity of the franc in the face of the depreciation of sterling and the devaluation of the dollar. But powerful forces were nevertheless at work undermining the apparent strength and stability of the French currency. The deterioration of the economic and financial situation shook public confidence in the future of the franc, and in April, I935, the Bank began to lose gold far more rapidly than it had acquired it during the early post-stabilization years. After eighteen months of growing monetary strain and great political turmoil the stubborn defense of the franc of I928 was abandoned and its devaluation accomplished. During the first half of the period under survey the dominant feature in the French monetary situation was the phenomenal absorption of gold by the Bank of France. Although this movement has evoked much discussion, its nature and causes have not yet been wholly freed from obscurity, and they still leave room, therefore, for analysis. Such an analysis the first part of this article attempts. The second part of the article examines the difficulties, the accumulation of which constitute the background of the devaluation, while the closing section discusses briefly the devaluation and its effects.