Current Economic Developments, Lot 70D467

Current Economic Developments


No. 135

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Multiple French Franc Rate Stirs UK and Fund

Climaxing weeks of rumors the French announced on January 25 that effective the following day the franc would be devalued in order to achieve stabilization of the French economy.

The Plan. The essential features of the plan are as follows: The par value of the French franc would be reduced by 44.444 percent, which would result in a change in the rate from approximately 119 francs per US dollar to approximately 214. At the same time a multiple currency practice would come into effect, whereby gold, the US dollar and other convertible currencies would be bought and sold in a free market inside France at unpegged rates. French exporters would be permitted to sell in this market one-half of their export proceeds in the designated currencies, the other half to be sold to the French monetary authorities at the official par value. In this free market French importers would be permitted to buy the designated currencies needed to pay for non-basic commodities. In addition, various “invisible” transactions would be authorized to take place in this market, including exchange transactions of tourists, capital transfers and other noncommercial remittances.

The parities of the homeland franc (of Continental France) with the other currencies of the franc zone are not modified except as regards the franc of the French territories of the Pacific as well as the French rupee. Their rate in relation to the dollar and the pound sterling remain unchanged.

UK Position, The UK has vigorously opposed the plan with its multiple rate features. The new rate will reveal the over-valuation of the pound sterling and put pressure on the British to devalue the pound, which the UK has been determined not to do. The official rate for the pound will be 864 francs, whereas, as indicated by the black market, the pound is worth fewer francs. The British fear that the new rate will place them at a disadvantage in meeting French competition not only in goods but also in the tourist trade.

Exporters from France to the US would receive a rate midway between the official rate of 214 francs and the free market rate of perhaps 340, namely 277 francs. Because exports from France have a favorable [Page 613] free market rate whereas imports have a different and lower (also favorable) official rate, British goods imported into France, it is feared in some quarters, would be re-exported to the US and net the exporter a substantial profit.

US Position. The US welcomes an adjustment in the French rate and while we do not necessarily approve of the multiple features of the plan adopted, and regret the disagreement between the International Monetary Fund and France, we recognize the difficult position France was in. The US works through the Monetary Fund and does not want to take unilateral action which may be interpreted as interference in the affairs of another country. Our representatives on the Fund were allowed wide discretion to act on the basis of the merits of the case.

International Monetary Fund Position. The Monetary Fund feels that France violated the agreement and that other members are, therefore, relieved of their obligation to maintain rates against the franc within the margin of one percent, as provided in the Articles of Agreement. The Fund held prolonged discussions with French financial authorities and made compromise proposals, all of which were rejected by France as not meeting her needs. As the result of this action by France, there is no agreed par value for the franc at present. The Fund agreed, however, with France that it was desirable to devalue the franc at a more realistic rate but opposed a multiple rate structure; it felt that the multiple rate gives a competitive advantage to French exporters in comparison to those of other countries.1

  1. For the texts of various public statements relating to devaluation of the franc, see Keesing’s Contemporary Archives, 1946–1948, pp. 9079 ff.