French Franc

Before the introduction of the euro, the French franc was the monetary unit of account in France, just as the U.S. dollar is the monetary unit of account in the United States. It was the first decimalized currency system in Europe, except for the Russian ruble.

French francs were first coined in 1803. Before the decimalized franc was introduced, the French currency system was based on the Carolingian system, in which 1 livre equaled 20 sols, which in turn equaled 240 deniers. In 1793, the French revolutionary government decided to replace the Carolingian system with a decimal system. In 1795, the livre was replaced with a franc equaling 100 centimes. These changes meant little amid revolutionary chaos, but Napoleon’s government began striking francs based on the new system in 1803.

The French Monetary Law of 1803 put the franc on a bimetallic system with the silver to gold ratio, per unit of weight, equal to 15.5 to 1. Coin pieces of 5 francs and less were struck in silver, and gold coins came in denominations of 20 francs and 40 francs. One franc equaled 5 grams of silver. The smallest denomination coin authorized by the act was a quarter franc. During the wars of the French Revolution and Napoleon, France imposed its new currency system on conquered states.

In 1798, France reorganized the freshly conquered Switzerland as the Helvetian Republic with a unified currency system in which 1 Swiss franc equaled 10 batzen, which in turn equaled 100 rappen. With the downfall of Napoleon, the Swiss threw off their imported currency system, but in 1850, they readopted the French system voluntarily. The Netherlands had also seen the French system imposed from without, but abandoned it in 1814. When Belgium won its independence from the Dutch in 1830, the Belgians reestablished the French System. Italy adopted the French system in 1861, but named its money of account the “lira” rather than the franc. One lira equaled 1 franc. Under different names, the French system became the basis of currencies in Greece, Spain, Rumania, Bulgaria, and Finland. Although the British pound sterling dominated international trade in the 19th century, the French franc was the most influential currency in Western Europe.

By the beginning of the 19th century, France had acquired a horror of inflation from two firsthand experiences. The hyperinflation of the French Revolution was still a fresh memory, further bolstering French resolve to maintain the stability and integrity of the franc. The French maintained the metallic content of the franc for 125 years. During the Napoleonic Wars, the franc experienced milder fluctuations than the pound sterling, perhaps because Napoleon’s war indemnities helped supply the gold and silver to maintain the franc’s parity. France suspended convertibility of the franc in the Revolution of 1848 and during the Franco-Prussian War of 1870–1871.

Following the Revolution of 1848, convertibility was resumed in 1850, and during the whole episode, the franc had only depreciated mildly. After the Franco- Prussian War, France was burdened with heavy war reparations and the political situation was clouded by the episode of the Paris Commune, which put Paris under the control of working-class revolutionaries. Nevertheless, the franc fluctuated only within a narrow range, and convertibility was resumed in 1878.

In 1865, France, Italy, Switzerland, and Belgium formed the Latin Monetary Union, which fought to preserve a unified, bimetallic monetary system in the face of the growing prestige of England’s gold standard. Declining silver prices made the bimetallic standard untenable, and France abandoned silver in 1873. By 1878, France was officially on the gold standard.

Under the gold standard, the franc lost a bit of its reputation for soundness. The French authorities were hesitant to allow an outflow of gold and insisted on their right to pay out badly worn 10-franc gold coins and 5-franc silver coins. All European countries effectively suspended the gold standard during World War I, but the franc emerged from the war weaker than the pound sterling and suffered speculative attacks. In 1926, the franc stabilized at about one-fifth prewar parity. From 1927 until 1931, the franc was undervalued and the pound sterling overvalued, putting an end to speculative attacks on the franc. With the onset of the Great Depression, England, Japan, and the United States devalued their currencies, leaving the franc overvalued. The Gold Bloc countries, mainly consisting of members of the old Latin Monetary Union, clung to the gold standard, and France, the leading member, remained on the gold standard until 1936. After World War II, the franc went through a series of official devaluations under the Bretton Woods fixed-exchange regime, the last occurring in 1968.

During the post–World War II era, the West German mark rose to become the preeminent European currency, partly because West Germany, compared to England and France, kept inflation subdued. In the 1990s, France tamed its inflation and the German mark was buffeted bythe turmoil of merging the two Germanys. As a consequence, the French franc regained some lost ground as one of the leading European currencies. In May 1998, members of the European Union announced plans to launch a European currency, called the euro, to replace the individual national currencies, including the French franc and the German mark. During a period of transition between January 1, 1999, and January 1, 2002, French franc banknotes and coins continued to circulate while the euro functioned as a “virtual currency.” In 2002, euro banknotes and coins replaced the French franc and other European currencies as the circulating currency in the euro area countries.