Cheaper Franc?

Out of France came a flood of reports that the franc, none too firm on its pegged legs, is to be devalued. The French Government denied all these reports, indignantly denounced them as "disturbing." But there were plenty of other reasons for the French to be disturbed about the delicate health of the franc. The main fact was the De Gaulle Government is still attacking the tough problem of French inflation in piecemeal fashion, has as yet had little success.

The fiscal problem which the French inherited from the Nazis is big. Under the occupation, the Nazis flooded the country with paper money, drained off goods and assets, such as gold, corporation stocks, etc. As a result, the amount of francs in circulation, along with bank credits and government bonds, trebled in three years to the galactic figure of one trillion, 370 billion francs. Because of the shortage of goods, prices rose far higher.

First Step. Some three weeks ago, the French Government made its first cautious attempt to curb this inflation by sopping up some of the currency, much of it in the hands of war profiteers and black marketeers. The Government floated a bond issue, bid for this cash by a "gentleman's agreement" not to ask where a buyer's money came from. Last week, the Government hailed the bond issue as a "success," and DeGaulle pleaded that it be turned into a "triumph," after 150 billion francs' worth had been subscribed.

(This is roughly equivalent to an $18-billion U.S. war loan.) But skeptical French financiers flatly called the loan a failure. They passed along the almost unbelievable gossip that two-thirds of the bonds were apparently bought by: 1) Belgian money fleeing the harsh deflation measures in that country (TIME, Nov. 6); 2) German franc holdings, built up in the occupation, coming back into France via Switzerland.

Despite the gentleman's agreement, black market profiteers, many of them peasants and industrialists, were either holding their cash or grabbing up goods and nontraceable assets at any price.

Tourist Army. Paris buzzed last week that the French Government is readying new--and tough--deflationary measures. Talk of a moderate capital levy was in the air. But there was more talk that France would issue a new currency, get a line on war profits when the old francs were exchanged for the new. With so much advance warning, much of the effect this might have has already been lost.

The next step is up to France's new Minister of Finance, Rene Pleven. Known better as a colonial administrator than financier, he nevertheless has a solid industrial background, the deft hand which will be needed in dealing with the public. And he has one sturdy prop: the U.S. army in France is, in effect, a huge tourist army. The U.S. Treasury now buys francs to pay these troops, supplements the francs with invasion currency, also redeemed by the U.S. Thus, France is building up its dollar credits at the rate of millions monthly. (In 1937, U.S. tourists spent only $14 million in France.)

As long as the troops remain, Pleven knows that it is to France's advantage to keep the overvalued franc where it now is. Last week he got help. The Allied government promised to allot port space and shipping so that the French can bring in 10,000 tons of civilian goods a day (about twenty 100-car trains)--mainly coal, food, building materials, etc., starting in January. But this was only a rear-guard action to check inflation until French industry can turn out enough goods to supply the demand. But the outlook was gloomy. The franc, pegged at 50 to $1, last week was still selling at about 300 to $1.

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