T. Cliff

The Franc Devaluation

How it will affect French and World Economy

(February 1948)

From Socialist Appeal, No. 55, February 1948.
Transcribed by Mike Pearn.
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

The French government has decided to devalue the franc and establish a free market in gold and foreign exchange. The official value of the franc, which was 119 to the dollar and 480 to the pound will from now on be 215 to the dollar and 864 to the pound. Besides this official price the free market will buy and sell dollars at about 340 francs to the dollar.

What importance does the French Government’s decisions have? What are the reasons for it and what will be its results? The answers to these questions will expose the bankruptcy of declining capitalism.

The causes of the French Government’s Decision

Two main associated causes led to the French government introducing the new financial manipulation:

  1. French exports lag badly behind her imports; and
  2. The position of French reserves in gold and foreign exchange is catastrophic.

Despite the tremendous export drive, France’s exports pay for only about 60 per cent of her imports, leaving her with a monthly trade deficit of about 10,000 million. Besides this, she pays about 2,000 million francs a month in transport freight to other countries and the same amount again on other expenditures (mainly military).

This adverse balance of payments has caused her reserves of gold and foreign exchange to be nearly exhausted and has jeopardised the stability of the financial system. While at the end of 1939 French gold reserves amounted to 1,779 million dollars, and in August 1947 to only 544 million. The foreign exchange reserves held by the Central Bank of France declined from 821 million francs at the end of 1938 to 3 million francs in August 1947.

Exports lag behind imports not because French production has dropped. On the contrary, production is above the pre-war level on the whole, and particularly in such key industries as coal, steel, electricity, building materials and a number of heavy industries. Nor is the world market to blame: it is hungry for goods and the demand is much above the supply. Furthermore, the real wages of the French workers, according to official statistics, are less than half of pre-war.

Exports lag as the result of two main factors; firstly the inflationary spiral which makes French products very dear in compared to products from other countries; secondly the high tariffs the United States put on all imported goods and the rising prices she demands for all exported goods.

The Right-Centre Schuman Government cannot get rid of the inflationary pressure by a capital levy, by heavy taxation on the rich, by a strict control of prices exercised by workers and consumers’ committees. It tried to do so by imposing more taxes on the rich, but, being immediately attacked from the right, it capitulated with inefficient half-measures. Now the French Government are forced to try another manipulation.

The Character of the New Gamble

By cutting the value of the franc to nearly half the French Government hopes that the price of French goods abroad will decline. This will allow French industrialists to undercut their competitors on the world market, and so will increase French imports.

On the other hand, the fact that French importers of all goods except a few necessities such as coal, wheat and raw materials, will be compelled to go to the free market to buy the dollars and other heavy currency needed to pay for the imports, will immediately mean a rise in the price of imported goods. In this way the Government hopes to decrease the volume of imports.

The new measure is intended to encourage export in general, but especially export to the dollar countries. On the other hand, it is intended to discourage imports in general, and especially imports from the dollar countries. The clause permitting a free market for dollars side by side with the official market will mean that a French capitalist who sells his goods in the United States will receive dollars which he will exchange for 340 francs; this he will then exchange for sterling at the official rate. It will thus turn out that a pound sterling will be exchanged not for 4.93 dollars but for less than 3. This will encourage the French capitalists to reap additional fat profits by exporting to dollar countries and then importing fro the sterling area.

Another reason for the new arrangement is that millions upon millions worth of gold and foreign exchange is hoarded by rich French capitalists. The French government hopes that the new free market price of 340 francs to the dollar in place of the former 119, might induce them to disgorge these fortunes. This would increase the reserve of foreign exchange in the hands of the Government.

The Social Character of the Gamble

The devaluation of the franc is a “compensation!” to the Black Marketeers. It is an inducement to cut imports and increase exports – an inducement to the capitalist – the exporter, the importer – at the expense of the workers and poor middle class. Thus even before the French Government’s pronouncement, the Black Market had already anticipated it, and prices rose in the two weeks previous to it by 50 to 100 per cent.

Financial System will not be Saved

The French government is trying its best to postpone the inevitable catastrophe. But it can use only palliatives; it cannot provide a solution. The new financial manipulations may possibly for a short time increase exports; but as the prices of imports rise and the prices received for exports decline – which the new regulations will ensure – France’s balance of payments will be as bad as it is now, even though the volume of exports rises and of import’s declines. The French workers will be further exploited in order to increase exports, their standard of living will remain terribly low and even be cut in order to keep imports down and still the balance of payments will not improve. Even the inducement to the Black Marketers to sell their hoards to the Government will most probably have meagre results. Since the Government has devalued the franc, they will examine the possibility of a further devaluation. They will keep the dollars and wait and see.

But French capitalism is in such a desperate financial position that it is compelled to gamble with any palliative which might save them for another short period – perhaps till the Marshall Plan comes to the rescue.

Bankruptcy of Capitalism

The catastrophic financial position of France is the result of the disruption of the world division of labour, the destruction of Germany which held the key position in the European division of labour, the decline of Europe as against the United States, etc. the new franc manipulation will cause a further disruption in the world division of labour. Britain’s export difficulties will increase as French exports rise. And the dollar will become even more powerful relative to the pound, while sterling is in danger of collapse. British capitalism will be driven to increased efforts to export while doing its best to close its doors to imports from France. Thus, confronted with the first difficulties in exporting, the French capitalists forget all talk of the Western bloc and put a knife in the back of Britain. Britain behaved similarly a few months ago, when, in order to strengthen the base of sterling, she decided on the abolition of the convertibility of sterling into dollars. This was used by the French Government as an argument to justify their unilateral devaluation action. The winds of economic adversity will bring the different capitalist countries of Europe back to the jungle law of capitalism: “Each man (or country) for himself.”

It is possible that United States imperialism will hasten the introduction of the Marshall Plan in order to save European capitalism by stabilising the currency of the countries of Europe, by slackening the strain in their balance of payments, by increasing their purchasing power. The Marshall Plan will possibly encourage an extension of the division of labour among the capitalist countries of Europe. But this will only be a temporary measure lasting at most only a few years. When the slump comes, when the crisis of over-production breaks out, each will try to increase its exports while cutting imports from other countries.

If today every capitalist country in Europe is blindly trying to save itself even if the others drown, this will increase tenfold when the slump comes.

No Stability Under Capitalism

Hitler Germany tried to “unite” Europe by the sword. Marshall tries to “unite” Western Europe by increasing the dependence of all the European countries on United States capitalism – Bevin’s scheme for a bloc of the Western capitalist countries as an independent factor standing on its own feet, is a fraud. European capitalism by itself will be shattered to pieces, every national capitalism stabbing the other in the back. Only under the patronage of dollar imperialism, can “unity” of a Western bloc be achieved.

Real unification of the economics of Europe and the world is an urgent task for the working people. It can be achieved only through the socialist revolution and the establishment of the Socialist United States of Europe and the World.

Last updated on 5.8.2011