Savings from 1912 to 2012

Bank Notes or Gold Coins?

A little morality tale from France about fiat money versus true value

By Bé Habba

This article is translated from the French original by Bé Habba who is a contributor to the French site Forum-Gold.fr

On June 24, 1912, a good-natured workman named Anatole puts aside the sum of 100 Francs, for his descendants. He is paid 5 Francs per day for 10 hours work, as typesetter at a printing works. It is a good wage, as many people earn less: a carpenter or a labourer earns 3 Francs per day, a dressmaker earns 2 Francs and a farmhand earns 1.5 Francs.

One kg of bread is worth 0.40 Francs. His 100 Francs thus amount to 20 days’ wages or 250kg of bread. Putting aside one day’s pay per month, he had to save-up for over a year and a half (20 months) to amass his 100 Francs.

To save it, he has three options:

- bank notes, for example 2 “pink and blue” 50 Franc bank notes

- silver coins, for example 20 “Ecu” 5 Franc coins, that is to say 500g of silver with a purity of 900/1,000.

- gold coins, for example 5 “Napoleon” 20 Franc coins, that is to say 32.25g of gold with a purity of 900/1,000.

As a typesetter, he is fascinated by the latest 100 Franc note issued by the Banque de France, designed by Luc-Olivier Merson. It is the very first polychrome bank note to be put into circulation. Compared to the old monochrome bank notes in black, blue, purple or the blue and pink bicolour notes, what an innovation! He therefore definitely decides to opt for modernity and places this brand-new bank note under his bed-sheets.

During the inter-war period, the “Merson” 100 Franc bank note remains under the sheets, but it loses value as inflation is significant. To catch up with inflation, Poincaré suddenly devalues the Franc under the law of June 25, 1928, which reduces its value, measured in gold, five-fold: the Franc is now worth 65.5 mg of gold with a purity of 900/1000.

The previous value of the Franc, known as the ‘Germinal’ Franc, had been defined by the 1795 Convention and then by the law of 7 Germinal year XI (March 27, 1803). The Germinal Franc was worth 5g with a purity of silver of nine tenths or 322.58mg with nine tenths gold (that is to say a gold/silver ratio of 15.5). This is why the 20 Franc gold coin weighed 0.32258 x 20 = 6.4516g from the revolution up to the 1928 devaluation.

Thus in 1928, silver and gold coins, whose values as noble metals became five times greater than their face value, are demonetized and withdrawn from circulation (or hoarded). But bank notes remain valid, and Anatole leaves his 100 Franc “Merson” under his bed-sheets.

 In October 1936, the Franc is further devalued and it is decided that henceforth it can fluctuate between 43mg and 49mg of gold with a purity of 900/1,000. Then in early 1939, following a new devaluation, the value in gold is set at 27.5mg with a purity of 900/1,000.

During the phoney war, the fall continues, and in February 1940 the Franc is only worth 23.34mg of gold with a purity of 900/1,000 (that is to say 21mg of fine gold).

During the liberation, the situation becomes somewhat chaotic. Pre-war bank notes, notes issued by the French State and notes issued by the Americans are used concurrently. On June 4, 1945, all notes of a value equal to or higher than 50 Francs are withdrawn from circulation. This massive exchange for reserve denominations of 300 and 5000 Francs, was carried out in 12 days throughout the whole of France. Later, when the new “Jeune paysan” 100 Franc bank notes were printed, the son of Anatole obtained one which he once again placed under the bed-sheets.

Post-war, inflation starts-up again, and the purchasing power of the 100 Franc bank note crashes. Two new devaluations took place in 1945 and 1949.

Returned to power in 1958, General de Gaulle announces the creation of a “re-valued Franc” which he entrusts to his Minister of Finance, Antoine Pinay and the economist Jacques Rueff. On December 27, 1958, an order establishes the “new Franc” equivalent to 100 old Francs. As the old Franc was worth 1.8mg of fine gold at that time (33 times less than the Poincaré Franc of 1928, and 12 times less than in 1940), the new Franc is thus worth 180mg of fine gold.

The old coins and bank notes remain valid for some time but the amounts written on them are henceforth worth cents rather than Francs. Anatole’s grandson thus exchanges the “Jeune Paysan” bank note of 100 old Francs which his father bequeathed him, for a brand-new “Semeuse” 1 Franc coin made of nickel. He finds the new coin to be very pretty and shiny. He places it under the bed-sheets.

The value of the new Franc is slightly devalued in 1969 and is worth 160mg of gold. Later the gold standard is abandoned and even prohibited under the Kingston Agreement of 1976.

During the period from the 1970s to 1990s, inflation is still occurring and several additional devaluations take place. In the year 2000, the “Semeuse” 1 Franc coin is still legal tender.

Finally, after 17 devaluations of the Franc during the 20th century, we reach the major revolution with the switch to the Euro: the coins and bank notes are put into circulation on January 1, 2002. The French have 6 months to exchange their Francs at any bank, and a further 3 years for coins and 10 years for bank notes issued by the Banque de France.

In January 2002, Anatole’s great-grandson removes the “Semeuse” 1 Franc coin from under the bed-sheets and exchanges it for Euros: one 10 cent coin, and one 5 cent coin. He again places the 2 coins under the bed-sheets.

And then, on June 24, 2012, Anatole’s great-grandson, who is now 60 years old, feels that the anniversary is an appropriate time and says to his son:

“Pierre, I must tell you something.  Exactly one century ago, your great-great-grandfather Anatole put 100 Francs aside. At the time, that was a significant sum. Each of his descendants carefully preserved this sum and it was handed-down from generation to generation, in the form of bank notes and then coins, through two world wars and several changes of currency. Today, I solemnly give to you the equivalent of the original 100 Francs: 15 Euro cents. It is up to you to preserve them and to pass them on to your eldest, to continue the family tradition.”

“But Dad, what do you want me to do with 15 cents? I can’t even buy a quarter of a loaf of bread! With that, I can barely get 40g of bread!”

EPILOGUE

Today in 2012, Pierre, a workman on the minimum-wage, earns 50 Euros per day for 7 hours work. He earns 1100 Euros per month for 22 days work.

One kg of bread costs 4 Euros, and to buy 250kg one would need 1,000 Euros. By putting aside 1 day’s wages per month, like his great-great-grandfather Anatole, he will need to save-up for 20 months.

However, if his ancestor had saved his 100 Francs in 20 “Ecu” 5 Franc silver coins, he would have approximately 340 Euros, instead of 15 cents. With that, he could buy 85 kg of bread.

But if his ancestor had saved his 100 Francs in 5 “Napoleon” 20 Franc gold  coins he would have approximately 1,300 Euros! That amounts to 26 day’s wages, and over 2 years of savings (26 months). With this, he could buy 325kg of bread…

---

Savings from 1912 to 2012 was first posted on July 18, 2012 at 6:50 pm.
©2011 “GoldCoin.org“. Use of this feed is for personal non-commercial use only. If you are not reading this article in your feed reader, then the site is guilty of copyright infringement. Please contact me at [email protected]

Feed enhanced by the Add To Feed Plugin by Ajay D’Souza

Read more at GoldCoin.org

Source: