Evening star., 1937-03-11
LOAN NSENDSFRANC
UP ON EXCHANGE
Quoted at 4.58Ns Cents
With Announcement of
$229, 600, 900 Bond Issue.
BACKGROUND

S~,SS~ 0VpIu tSSOVs
BACKGROUND
Premier Leon Blum's soctalistic
government last Friday bolstered
uncertain French finances by lifting
the ban on domestic gold trading,
hoping to attract funds shipped to
foreign countries back to France.
At same time drastic curtatlment
OF public expenditures Uds prom
tsed, U,th the urge OF support for
the neD national defense fund, as
surin0 it Uould be only treasury
issue during year.
Parliamentary approval ,Das gipen
s47s,S5o.000 defense loan yesterday.
IL the Associated Press.
NEW YORK, March 1.-THE
French franc rose sharply in foreign
exchange dealings today following an
nouncement in Paris OF new ma
tional defense loan Of 5000, 900, 900
francs approximately 1928, 900 ,000) to
be offered at 98 francs per 100 par
value franc bond with interest at Az
per cent.
The French unit was quoted at
4.5SB cents, rise of 01 3/l6 of q
cent from yesterdays nnal rate. The
gain was expected inasmuch as the
relatively high yield OF the loan, $50
per cent to maturity, was calculated
TO attract some of the French capital
which has found refuge here in recent
years.
Any homeward movement Of funds,
1t was pointed out, naturally would
set up a demand for francs, tending
to lift the price paid for the currency
In exchange markets.
Billion Surplus in U. S.
Some bankers estimated the surplus
amount Of French funds here, that is
the amount not needed for normal
purposes OF trade between the two
countries, at somewhere In the neigh
borhood Of $1,000, ,O00, 900. much of 1t
invested in long-term American Sc
curities and unlikely 10 be repatriated
suddenly.
Short-term investments and banking
balances here merely for quick profit,
or for relative safety, it was thought,
would be the first to return to France
for investment in the new loan.
The upward movement Of stocks in
the New York Stock Exchange in early
trading today indicated, brokers said,
that there had not been any heavy
overnight orders for liquidation of
Fench investments here.
While some American money might
be expected to go into the loan because
of the relatively high interest rate,
bankers expected the amount to be
negligible
Primary success Of the loan, it was
considered here, would depend upon
the amount of confidence engendered
by the drastic financial measures taken
by the Blum government last week.
Possibility Of further depreciation OF
the franc, failure to balance the budget
because Of heavy government expendi-
lures both for ornaments and in the
social program, and the vague threat
OF an arbitrary levy on capital had
sent huge sums either into domestic
boarding or abroad for investment.
Financial Measures.
The financial measures included:
/. A promise to defend" the franc.
2. Establishment of free gold mar
ket, that is, the right to sell gold TO-
or buy it from the Bank Of France at
approximately the world level, without
restriction.
8. Announcement OF national de-
fense loan" to be payable in francs
dollars or pounds sterling At the option
of the holder with the rate Of exchange
guaranteed and the promise that the
loan, little more than 10000 900 ,oOC
francs in all, would be the only long
term government financing for the
year.
4. Promise to reduce the Treasury.
burden this year by 5000, 900 o0t
francs.
Establishment OF the free golc
market was considered one OF the
most important Of the measures
Under the old law, hoarders who with.
drew gold. or shipped it aboard with.
out permission Of the Treasury were
subject to penalties. These have been
removed and sales to the bank Of such
gold may be made without revealing
the identity Of the vendor
Much OF the gold previously shipped
abroad had been fugitive" which the
holders feared to return because
revelation of their identity might SUBJ
ject them to fines. Now, with no ques-
tions asked, the Government hopes
much of this capital will hurry helter
skelter home.
Bar Sudden Fluctuation.
Alss of Importance was the promise
to defend the franc and to stand by
the tripartite monetary agreement
signed last Fall with the United States
and Great Britain. This meant that
no sudden fluctuations in the currency
would be permitted and that French
exporter or importer could make COM
mitments for months ahead without
the fear that a depreciation of the
franc in terms of world currencies
would upset his balances
To peg" the franc means to give It
settled, or nearly-settled, value
in terms Of gold, or Of other currencies.
To effect this the Bank of France an
nounces the price at which it will buy
and sell gold at the beginning of each
banking day. If gold is permitted to
move freely. the price Of the currency
in terms of others remains near its
actual value in terms Of gold, and is
thus relatively stable.
To keep it so, the French stabiliza-
ton fund IS prepared to buy francs if
foreign offerings are 50 great rs to
| cheaper their value, or sell them
should they become too high in terms
| Of other currencies.
This stability Of the franc, the gov
ernment hoped above all, would At
tract the gold held by hoarders gam
bling Oh the profit they would make
should the currency fall in relation
to gold. With no profits in sight it
expected them to return it to circula-
ton, or rather to the reserves Of the
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