Background
The Kingdom of France's first experiment with a central bank was the Banque Générale (Banque Générale Privée or "General Private Bank"), set up by John Law at the behest of the Duke of Orléans after the death of Louis XIV. Law received the bank's 20-year charter in May 1716 and its stock consisted of 1,200 shares valued at 5,000 livres apiece.[6] It was meant to stimulate France's stagnant economy and pay down its staggering national debt acquired from Louis XIV's wars, including the War of the Spanish Succession. It was nationalized in December 1718 at Law's request and formally renamed the Banque Royale a month later.[7] It saw great initial success, increasing industry 60% in two years, but Law's mercantilist policies saw him seek to establish large monopolies, leading to the Mississippi bubble. The bubble ultimately burst in a financial crisis in 1720, and on 27 November of that year, the Banque Royale officially closed.[8]
The collapse of the Mississippi Company and the Banque Royale tarnished the word banque ("bank") so much that France abandoned central banking for almost a century, possibly precipitating Louis XVI's economic crisis and the French Revolution. Successors such as the Caisse d'Escompte (from 1776 to 1793) and Caisse d'escompte du commerce (from 1797 to 1803) used the word "caisse" instead, until Napoleon retook the term with la Banque de France ("Bank of France") in 1800.
Creation
In 1803, financial power in France was in the hands of fifteen members of the Haute Banque, when the shareholders' meeting ratified the appointment of a “Council of Regency” composed of Jean-Frédéric Perregaux, Guillaume Mallet, Jean-Barthélemy Le Couteulx de Canteleu, Joseph Hugues-Lagarde, Jacques-Rose Récamier, Jean-Pierre Germain, Carié-Bézard, Pierre-Léon Basterrèche, Jean-Auguste Sévène, Alexandre Barrillon, Georges-Antoine Ricard, Georges-Victor Demautort, Claude Perier, Pierre-Nicolas Perrée-Duhamel, Jacques-Florent Robillard, and Jean-Conrad Hottinguer. These powerful bankers, representative of the financial elite that would become referred to in France as the Haute banque, were deeply involved in the agitations leading up to the French Revolution. When the revolutionary violence got out of hand, they orchestrated the rise of Napoleon Bonaparte, whom they regarded as the restorer of order. As a reward for their support, Napoleon, in 1800, gave the bankers a monopoly over French finance by giving them control of the new Bank of France (Banque de France).[9] Banker Claude Perier drafted the first statutes and Emmanuel Crétet was the first governor of the Bank.
On 24 Germinal, year XI (14 April 1803), the new Bank received its first official charter granting it the exclusive right to issue paper money in Paris for fifteen years.[10]
Development
On 22 April 1806, a new law replaced the Central Committee with a Governor and two Deputy Governors. All three were appointed by the Emperor.[10] On 16 January 1808, a decree set out the "Basic Statutes", which were to govern the Bank's operations until 1936.[10]
For the first fifteen years, the Bank of France was the sole issuer of bank notes in Paris, and this privilege was extended to other financially important cities and the rest of the country by 1848.[11]
The Bank was also instrumental in the creation of the Latin Monetary Union (LMU) in 1865. The countries of France, Belgium, Italy, and the Swiss Confederation established the LMU franc as a common bimetallic currency.
In World War I, the Bank sold short-term Treasury bonds abroad to help pay for wartime expenditures. France abandoned the gold standard shortly after the outbreak of war. Debts amounted to approximately 42 billion francs by 1919. Following the war, the Bank sought to re-establish the gold standard and acquired capital from a number of American and British banking syndicates to defend the franc from exchange-rate fluctuations.
