Working Paper: CEPR ID: DP13138
Authors: Vincent Bignon; Marc Flandreau
Abstract: This paper offers a comprehensive (short) history of central banking in France, starting in the 18th century and finishing with the creation of the Euro in 2001. We first discuss how the French experience with central banking in the 18th century shaped the drafting of the charter and the governance of the Bank of France in 1800. We then single out how the Bank implements its monetary policy in the 19th century and assess the bank achievement in terms of monetary and financial stability. Finally we discuss how the sovereign debt overhang triggered by World War I and the reconstruction subverted the model of central banking previously implemented, and how the reluctance of the Bank to be implicated in the management of the sovereign yield ultimately leads to the loss of its independence vis-a-vis the state. Against this background the use of financial repression under the guidance of the state allowed a smoother management of the debt overhang during the post WW II period, but created its own issues that were addressed effectively only with the creation of the Euro.
Keywords: Bank of France; Central Banking; Monetary Policy; Financial Stability
JEL Codes: E58; N23; N24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| French experience with central banking in the 18th century (E58) | governance of the Bank of France in 1800 (E58) |
| monetary policy by the Bank of France in the 19th century (E58) | monetary and financial stability (E63) |
| World War I (N44) | loss of independence from the state (H77) |
| state intervention (P16) | smoother debt management post-World War II (H63) |
| smoother debt management post-World War II (H63) | new challenges with the establishment of the euro (F36) |