A Test of Sobriety

Like a reformed drunk, France has been smugly satisfied of late with its fiscal sobriety. The French have been amassing reserves, making early repayments on their debts to the U.S., and self-righteously lecturing the U.S. about putting its balance-of-payments in order.

Now, however, General de Gaulle's franc is looking a trifle weak on the world's markets. A hint of softness appeared in the last week of August, when the franc slipped from its normal 4.90 to the dollar to 4.91. Then it went down to a rate of 4.944 two weeks ago, and last week it drifted indecisively before closing at 4.9375.

The reason, as bankers figure it, is that short-term money in France earns 5% to 51% , less by as much as a percentage point than dollars have been earning on the Eurodollar market or in the U.S. Thus, French bankers have been turning in francs for dollars to invest at a higher rate of interest. These rates, plus heavy summer spending abroad by French tourists and a seasonal increase in French imports this fall, have created a "technical" weakness in the franc.

The situation of the franc is far from critical. Behind the franc stands a fat reserve of $5.9 billion, mostly in gold, which remains ample despite a mild decline in the last two months. France's balance of payments shows a healthy surplus. Last month an early debt repayment of $71 million was made to the U.S., and France has used surplus dollars to buy $358 million in gold from the U.S. in the first eight months of 1966. These are all clear signs of fundamental strength.

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