210 The Domestic Politics of International Monetary Order: The Gold Standard
the Bank of England’s policies had beneficial global effects was a by-product of
this structure and of the central position of London in the global system.
The political conditions that produced this spillover were for the most part
evident only in England. In other countries, deflationist and internationalist groups
were generally weaker than their domestically oriented rivals, and this was reflected
in monetary institutions and practices. The commitment to the gold standard’s
principles and rules was far more conditional and uncertain on the continent than
in England. In France, our next case, the tendency to insulate the domestic economy
from external influences resulted primarily from the inward orientation of land,
industry, and banking but came at the expense of Paris’s role as an international
financial center. Yet ironically, by reason of its predominant interest in domestic
objectives, France came to act globally as the system’s lender of last resort during
the relatively infrequent emergencies that arose, thus providing the gold-standard
regime with another of its stabilizing functions.
FRENCH DOMESTIC AND INTERNATIONAL MONETARY POLICY
Nominally, France maintained a bimetallic standard throughout the nineteenth
century, but silver constituted the greater part of the coinage before 1850. The
Bank of France usually cashed its notes in silver; when gold coin was wanted for
export in bulk, it generally commanded a premium. In the early 1870s, when a
glut of silver on world markets threatened to drive gold entirely from circulation,
France and the other bimetallic countries of the Latin Monetary Union responded
by suspending the free coinage of silver. The French, however, did not adopt a
full gold standard. Instead, from 1878 until 1914, they operated a “limping gold
standard,” which gave monetary authorities greater flexibility in accommodating
external pressures to domestic macroeconomic priorities. The convertibility of
banknotes into gold was not guaranteed by law but was left to the central bank’s
discretion: in effect, capital controls were imposed in order to maintain monetary
sovereignty.
Under the limping standard the Bank of France could legally redeem its notes
in either French gold coin or in five-franc silver pieces at its own discretion.
Having the right to make any payments in silver rather than in gold, the Bank
could protect its gold reserve from the pressure of foreign drains. In practice,
whenever the Bank wished to limit gold exports, it refused to redeem its notes in
gold at the mint par rate of exchange and developed the policy of making gold
payments at a premium. In other words, instead of refusing to maintain the gold
convertibility of the franc, the Bank elected to charge a premium for gold—a
mini-devaluation—to check external drains.
... While the policy had the effect of discouraging gold exports, its main
disadvantage was that it impaired the credibility of the French gold standard and
thereby limited the expansion of French international banking and the development
of the franc as an international currency.
Indeed, the Bank of France’s occasional insistence on attaching a premium to
redemption of its notes in gold meant a virtual abandonment of the gold standard.