Inspired by the many French revolution threads, I started looking at England's finances around the same time; one thing led to another and I have a new idea. So France's current central bank, the Banque de France, was founded by Napoleon in 1800. However, it originally dates back to 1718, when the Regent acquired John Law's general bank for the government, with that incarnation crashing in 1721 after Law's Mississippi bumble crashed. So my question is this: could the original Central bank last, or failing that be refounded later in the century? I ask because it would give France an official government creditor, which could be a help considering the financial problems that led to the revolution. So good idea or bad idea?
Plausibility check: early French Central bank?
- Thread starter Emperor Constantine
- Start date
Of course its a good idea.
The problem is that the french monarchy became unable to decide and implement strong reforms.
Most of the projects had been in the box for decades until the revolutionaries and Napoleon implemented them at last.
The problem is to have a ruler who can make decisions and who is not emasculated either by his tutor (Louis XV by cardinal Fleury) or by his family (Louis XVI by his parents, his elder brother and his grandfather).
The most disastrous event was the cardinal Fleury's far too long tutorate and ministery. Fleury was an ambitious old man with no vision for reform and who did all he could to undermine young Louis XV's self-confidence in order to perpetuate his own power.
The problem is that the french monarchy became unable to decide and implement strong reforms.
Most of the projects had been in the box for decades until the revolutionaries and Napoleon implemented them at last.
The problem is to have a ruler who can make decisions and who is not emasculated either by his tutor (Louis XV by cardinal Fleury) or by his family (Louis XVI by his parents, his elder brother and his grandfather).
The most disastrous event was the cardinal Fleury's far too long tutorate and ministery. Fleury was an ambitious old man with no vision for reform and who did all he could to undermine young Louis XV's self-confidence in order to perpetuate his own power.
Of course you could have a new central bank.
It's effectiveness however is a much different question. If the central bank is subject to royal orders, then it is very likely that it will fail anyway. States went bankrupt and experienced hyperinflation even if they had a central bank. Unless you have an independent central bank that can defy the King and the government in its actions it's all up to politics.
It's effectiveness however is a much different question. If the central bank is subject to royal orders, then it is very likely that it will fail anyway. States went bankrupt and experienced hyperinflation even if they had a central bank. Unless you have an independent central bank that can defy the King and the government in its actions it's all up to politics.
So could a semi-independent central bank, like the Bank of England or Amsterdam, be formed under the Bourbons? BTW I was thinking of it being created in the 1760s or 1770s.
I don't think so. The Bourbons wanted absolute monarchy. Why would they choose to make the bank independent from them? Especially when the economic case for independence being superior hasn't been established yet?
Well the Bank of England was semi-independent and had been successful in repairing/maintaining the British economy, so would it be so odd for one or several French economists to use their rival's relative success as en example of what could work in France?
And what do you think Louis XVI is going to do with it when the French state is facing bankruptcy?
Lord Protector
Banned
Hmm,maybe someone greedy in france could make a scheme of sourts.
If only the king and his closest advisors know how much money the bank has they can keep using bank notes as de-facto money in the whole country,as long as nobody makes to large withdrawls they could keep pretending they have money.
Kind of like the modern west
If only the king and his closest advisors know how much money the bank has they can keep using bank notes as de-facto money in the whole country,as long as nobody makes to large withdrawls they could keep pretending they have money.
Kind of like the modern west
I was actually thinking of having it founded in the mid 1760s, after the Seven years war, as an attempt to rebuild the French economy. Considering the reformist nature of the last years of Louis XV, I think such an idea could be possible around that time.
ManintheField
Banned
The Bank of England had no obvious maintenance or repair role in the economy prior to the middle of the 19th century. At the time, it was thought of as a purely private entity with purely private interests which had a monopoly on government credit, whose only public obligation was being willing to extend that credit at the government's will (in exchange for certain privileges which eventually led to its monopoly on note issue).
The idea of central banks as economic regulators only really reached anything like maturity in the 20th century and only entered into practice about a quarter of the way through that. Before that, they were government creditors with privileges, with some vague but increasingly, over time, distinct idea that their management of the money supply must be better than what private banks could do because reasons (which also happened to be highly convenient for the people making those decisions, since a monopoly central bank is much more capable of extending credit to the government than a non-monopoly central bank).
The prime reason a French monarch is going to create a new Bank of France is going to be for reasons of public finance. The problem is that it's going to be VERY hard to get its notes to circulate in France with the memory the Mississippi crash still relatively fresh. The French monarchy would actually have had a lot of trouble getting legal tender laws to 'stick' in the French countryside and the ability to keep notes in circulation is how banks like that back then made money. Without that ability, a new Bank of France is going to have limited ability to extend credit to the monarchy, and thus limited utility to that monarch.
There's a reason that it's an extremely rare case (I cannot think of one off the top of my head, and this is something of my area of specialty) where a note-issuing central bank precedes private issuers. It's really, really hard to get people used to using money with heft and a sense of solidity-in-hand to switch to flimsy paper notes. There has to be a large degree of comfort in an extended market and trust in the institutions issuing those notes that is hard to come by in the fragmented economy of the ancien regime.
One of the fascinating things I discovered was that Central Banks weren't.
To expand. The Bank of England, the Bank of Scotland, and the Bank of the United States ALL started as semi-commercial banks, taking deposits and making private loans just like any other bank.
Of the 3 mentioned, the Bank of England moved into a purely governmental Central Bank rôle, the Bank of the United States (both of them) went under due to politics (when a Central Bank campaigns actively for a Presidential candidate, it's no wonder it's shut down), and the Bank of Scotland is an almost completely purely commercial bank these days. (It does issue a few 1£ notes)
So, back then, there wasn't really a formal 'Central Bank' concept that could be borrowed and implemented.
Edit: Oops, just noticed Maninthefield said much the same. Sorry.
To expand. The Bank of England, the Bank of Scotland, and the Bank of the United States ALL started as semi-commercial banks, taking deposits and making private loans just like any other bank.
Of the 3 mentioned, the Bank of England moved into a purely governmental Central Bank rôle, the Bank of the United States (both of them) went under due to politics (when a Central Bank campaigns actively for a Presidential candidate, it's no wonder it's shut down), and the Bank of Scotland is an almost completely purely commercial bank these days. (It does issue a few 1£ notes)
So, back then, there wasn't really a formal 'Central Bank' concept that could be borrowed and implemented.
Edit: Oops, just noticed Maninthefield said much the same. Sorry.
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The precursor to all three, the Amsterdamse Wisselbank (Bank of Amsterdam), however, started as a purely transactional system.
That is, to standardise finances, while not lending but only facilitating easier commerce.
It went down by lending too much to the VOC and governments - I can't quite find back if lending at all killed it (by eroding trust), or the fact that said loans didn't work out.
That is, to standardise finances, while not lending but only facilitating easier commerce.
It went down by lending too much to the VOC and governments - I can't quite find back if lending at all killed it (by eroding trust), or the fact that said loans didn't work out.
ManintheField
Banned
The Bank of Scotland was never actually a central bank. It never received a formal monopoly of note issue and never took anything like a regulatory role over the money supply. The only time it tried to claim a monopoly (against the Royal Bank of Scotland in the early 18th century) it was denied and Scotland operated very successfully without a central bank or any institution like one for more than a century afterward.
Even for the time it didn't have the public credit monopoly the Bank of England did: It was actually explicitly forbidden from lending to the government of Scotland for the short period it existed before the Act of Union.
??? You're saying the "Bank of Scotland" and the "Royal Bank of Scotland" are different things?
OK. Mind officially blown.