Selections from this paper were delivered at the Annual Meeting of the American Statistical Association, Philadelphia, Pennsylvania, on September 8, 1965.


Selections from this paper were delivered at the Annual Meeting of the American Statistical Association, Philadelphia, Pennsylvania, on September 8, 1965.

Hannan Ezekiel*

THE SHORT-TERM money market in France is primarily a market for liquidity in the form of central bank balances. It is thus, for all practical purposes, identical with the call money market.1 This call money market is located mainly in Paris, though small, irregular, subsidiary markets have developed outside Paris also. The constituents of this market are the holders of current accounts with the Bank of France—mainly the banks and various other financial institutions.2 These institutions balance out their temporary surpluses and deficits of cash by lending out or borrowing day-to-day money among themselves. They operate in the market through brokers, who establish the necessary contacts between borrowers and lenders, and through discount houses, which enter into contracts on behalf of the borrowing and lending institutions. Both brokers and discount houses are thus primarily intermediaries and play only a very small independent part, if any, in the market. Private persons and businesses other than banks do not have access to this market.

The large national banks operate in the call money market through their head offices located in Paris. Some of the French regional banks also maintain Paris offices, which provide them with access to the central market. However, other regional banks and the large number of local banks in France establish only indirect relations with the central market, through correspondent banks having offices in Paris. As banks in France are not subject to any minimum requirements with regard to their cash reserves as such, they tend in practice to hold extremely low cash reserves (including balances with the Bank of France), as shown in Table 1. The liquidity of the banks in France thus consists not so much of cash as of the recourse which they may have either to the call money market or to the central bank and other rediscount institutions, by rediscounting commercial and Treasury bills,3 selling such bills en pension,4 or obtaining 30-day advances against the security of such bills. There is a complex set of arrangements under which banks can rediscount not only with the central bank but also with a number of other institutions. Rediscount operations are generally centralized in Paris. However, the degree of autonomy permitted to local managers of the national banks varies somewhat between different institutions. Within the discretion allowed to them, managers in the provinces may rediscount direct with the local branch of the Bank of France. Local banks and regional banks with no Paris office also rediscount with the branch offices of the Bank of France.5 French banks tend in general to make rather extensive use of the rediscount facilities available to them. A striking feature of the French monetary and banking system is, in fact, the continuous indebtedness of the banks to the central bank. Although the ratio of resources obtained by banks through rediscount to their total resources has fallen rather sharply during recent years (Table 2), this ratio was still over 14 per cent in 1963. The call money market provides the main alternative to these rediscount operations. As a result, the demand of banks for funds on the call money market is conditioned by the possibility of recourse to the central bank, and the supply of funds by banks on that market is conditioned by the possibility of using their surplus funds to reduce their outstanding indebtedness to the central bank.6

Table 1.

France: Cash, Deposits, and Cash Ratios of Banks, End of Year, 1953–63

(Amounts in billions of francs)

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Source: International Monetary Fund, International Financial Statistics.
Table 2.

France: Volume and Proportion of Bank Funds Obtained Through Rediscount, 1953–63

(Amounts in billions of francs)

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Sources: Conseil National du Crédit, Annual Reports, 1953–63.

This includes the banks’ own funds (capital and reserves), as well as deposits and other liabilities.

There are in France a number of specialized financial institutions in the public sector which use their own funds, the proceeds of issues on the capital market, and savings deposited with them by the public to provide medium-term and long-term credit to the economy. These institutions hold substantial liquid funds with the Treasury, and otherwise maintain close financial relations with it. Among these institutions are the Crédit National, the Caisses de Crédit Mutuel, the Caisses de Crédit Coopératif, the Caisses de Crédit Agricole, and the Crédit Foncier. The most important of these specialized institutions, however, is the Caisse des Dépôts et Consignations, which controls the activities, and especially the investment policies, of the savings banks. It directs their resources, as well as other resources of its own, toward local authorities, nationalized enterprises, and housing. The total volume of funds over which these institutions exercise control is relatively large. Variations in the inflows and outflows of funds in the course of their normal operations often produce temporary surpluses which they invest in the call money market. They are thus usually lenders in that market. Like the banks, these institutions supplement their resources by rediscounting paper with the Bank of France and may use surplus funds to reduce their indebtedness to it. Therefore, the call money market is for these institutions, just as it is for the banks, an alternative to the Bank of France.

The transactions of banks with the central bank and in the call money market depend upon variations in their own liquidity positions as a result of their normal business transactions. As in other countries, three main factors affect the liquidity positions of the banks in France: (1) changes in the volume of currency in circulation; (2) movements of gold and foreign exchange; and (3) Treasury operations.

The proportion of coins and currency notes in the French money supply has always been extremely high. It remained high during the period immediately after World War II, but since 1951 it has fallen, from 51 per cent of the money supply in that year to 38 per cent in 1963 (Table 3). A high proportion of currency to money supply implies that, other things remaining unchanged, banks tend to face a rather heavy drain on their liquid resources relative to any given expansion in credit. However, this drain has become progressively smaller over the postwar period.

Table 3.

France: Currency and Money Supply, End of Year, 1948–63

(Amounts in billions of francs)

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Sources: Conseil National du Crédit, Annual Reports, 1948–63.

An increase in the net foreign assets of the monetary and banking system as a result of a surplus in the balance of payments (or a decrease in such assets as a result of a deficit) produces corresponding inflows (or outflows) of bank liquidity. The impact of the external sector on bank liquidity in France has been quite powerful throughout the postwar period. Until 1959, short periods of increases in French net foreign assets alternated with somewhat longer periods of decreases in such assets. The drain on bank liquidity as a result of contraction of net foreign assets (after making allowance for revaluation of these assets in 1957, 1958, and January 1959) was particularly heavy from 1955 to the beginning of 1959. From 1959, however, the French balance of payments has been more or less consistently in surplus, and the inflow of gold and foreign exchange into French reserves has produced a corresponding inflow of liquidity into the banks.

In all countries, the fiscal operations of Treasuries—including in such operations the Treasury’s net borrowing from the banks, from the specialized institutions, and from the public, through Treasury bills and longer-term bonds—involve transfers of liquid resources between banks and the Government that produce an impact on bank liquidity. In France, in addition to its fiscal activities, the Treasury plays an important banking role. It collects deposits from the public through the post offices (comptes cheques postaux) and over the counters of its own agencies (fonds particuliers). It also holds the funds of a large number of other public or semipublic correspondants, including the specialized credit institutions, some of which have been mentioned already, and the nationalized industrial or commercial enterprises, such as the national energy undertakings and the French state railways. In addition to the holding of these deposits, the banking role of the French Treasury extends to providing credit to private individuals and businesses.

The Treasury and the banks do not maintain accounts with each other, so that variations in the flows of funds into and out of the Treasury as a combined result of its fiscal and banking operations affect the liquidity of the banks. Net outflows from the Treasury at any time are financed by drawing down the Treasury’s balances with the central bank and/or increasing its borrowing from the Bank of France, and this increases the liquidity of the banks.7 Net inflows into the Treasury, on the other hand, either increase Treasury balances or are used to reduce the Treasury’s indebtedness to the Bank of France, and the result is a drain on the liquidity of the banks. As a result of the operation of these forces and of their own credit operations, the banks face varying needs for liquidity relative to the liquid resources at their disposal. They satisfy these needs by turning, on the one hand, to the central bank and other rediscount institutions and, on the other, to the call money market.

The Official Market for Liquidity8

In France, bank borrowing from the central bank is not affected by the official discount rate alone, as might be the situation elsewhere. It is affected rather by a whole group of rates (Chart 1), each of which becomes relevant in certain circumstances. The official discount rate is the rate at which the central bank rediscounts commercial and Treasury bills presented by the banks up to ceilings prescribed for individual banks. It is the rate also at which en pension purchases of short-term paper are made by the central bank as a part of its so-called open market operations. (Short-term paper consists of (1) Treasury bills, (2) SNCF bills, (3) bank acceptances, (4) bills guaranteed unconditionally by the Caisse Nationale des Marches de l’Etat, (5) export paper backed by a bank guarantee or aval, and (6) short-term export drafts.) These operations are considered in France to be merely technical and smoothing out operations.9 They differ in several respects from open market operations as these are traditionally understood elsewhere. First, these operations are carried out in short-term rather than in medium-term and long-term paper. Second, there is no market as such for Treasury bills in France. Third, open market transactions are carried out for all practical purposes at the discretion of the banks rather than of the Bank of France; until December 1960, the central bank was obliged to buy from the banks all Treasury bills offered to it which had less than three months to run.

Chart 1.
Chart 1.

France: Structure of Official Interest Rates and Level of Call Money Rate, October 1948–December 1963

(In per cent per annum)

Citation: IMF Staff Papers 1965, 003; 10.5089/9781451969061.024.A004

In fact, in France, open market operations merely represent a special arrangement under which assistance is provided by the central bank to the banks, in addition to that which is provided in the course of normal rediscount operations. A separate ceiling is fixed for each bank for the total assistance it can receive under this head. Banks needing funds above the combined rediscount and open market ceilings have to sell their bills en pension to the central bank at penal discount rates. One penal rate (taux d’enfer) is applied for funds required above the rediscount ceiling up to 110 per cent of the ceiling, and a still higher rate (taux de superenfer) for funds exceeding 110 per cent of the ceiling. The provision of assistance above the ceiling not merely attracts penal rates of interest, but is also subject to the discretion of the central bank.

The impact of this three-tier system of interest rates is somewhat mitigated by the fact that certain types of paper—mainly short-term cereal bills, export paper, and medium-term equipment and construction paper—can be mobilized outside the ceilings (hors plafond). The rate charged for such mobilization depends upon the type of paper involved. The cost of mobilization of medium-term equipment or construction paper has, for instance, been generally higher than the discount rate, but somewhat lower than the taux d’enfer. On the other hand, the special rate for export paper has for many years been lower than the official discount rate, having remained fixed at 3 per cent. The central bank has also maintained a system of advances to the banks for 30 days or less. For many years, such advances were made at the same low rate as that prevailing for the discount of export paper. From January 1955 to December 1963 the rate for advances remained fixed at 3 per cent, despite many changes in the discount rate and in other rates during this period. In January 1964, the rate for advances was raised to 4 per cent, to which level the discount rate was also raised at that time. However, it can be presumed from the small amount of assistance that has been made available in this way to the banks throughout the postwar period that rather stringent conditions are imposed in connection with such advances.

In addition to the restrictions on bank borrowing from the rediscount institutions which are inherent in this structure of interest rates, such borrowing is also subject to certain indirect restrictions resulting from the operation of various requirements with regard to the banks’ asset structure. These requirements are of two types. First, banks are required to hold specified minimum amounts (floors or planchers) of Treasury bills,10 as proportions of their current liabilities. Second, each bank’s holdings of certain types of assets—cash, Treasury bills, and paper that is mobilizable with the Bank of France hors plafond—must form a prescribed minimum percentage of current liabilities. This is called the coefficient de trésorerie. The banks also have to maintain a third ratio, the coefficient de liquidité, which is the ratio to current liabilities of all the assets included in the coefficient de trésorerie, plus any other paper which is mobilizable with the Bank of France, plus negotiable securities. However, this ratio, fixed at 60 per cent, is intended primarily to safeguard the interests of depositors rather than to control the volume of credit creation.

The system of official interest rates and minimum bank asset ratios that has been described above provides the authorities with a variety of instruments for influencing both interest rates and the volume of bank credit. The most obvious instrument of control is, of course, the discount rate, which probably forms the linchpin of the entire system. By varying the discount rate, the authorities can change the cost of obtaining assistance from the central bank up to the prescribed ceiling. However, until 1959, bank lending rates changed at the same time as the discount rate and by the same amount. On December 17, 1959, the system was changed to provide that bank lending rates would change by only half the change in the discount rate when the latter moved outside the range of 3.5–4.5 per cent. For the next four years the only changes in the discount rate were made on October 6, 1960, when it was reduced from 4.0 per cent to 3.5 per cent, and on November 14, 1963, when it was raised from 3.5 per cent to 4.0 per cent. In this period, therefore, bank lending rates continued to be fully adjustable to actual discount rate changes. The system was further modified on November 21, 1963 to provide that bank lending rates would change by half of any change whatever in the discount rate, commencing with the change on November 14.

The French monetary authorities are also in a position to change either or both of the penal rates, thus affecting the cost of borrowing from the central bank above the rediscount ceilings. Since bank lending rates are determined by the basic discount rates, banks which have to borrow from the central bank at the penal rates obviously suffer from a sharp squeeze on their profits.

It is, therefore, of special interest to note that the authorities also have a very powerful instrument at their disposal for influencing the effectiveness of the penal rates. This instrument is the ability to vary the ceiling for rediscounts at the basic rate. For the reasons explained in the preceding paragraph, banks would tend on the whole to avoid borrowing from the central bank at the penal rates for any extended period. The penal rates and the height of the ceilings have, therefore, a greater effect in the long run in limiting the volume of bank borrowing from the central bank than in raising the actual cost of such borrowing. However, in the short run, the height of the ceilings influences the amount of assistance from the central bank for which the banks have to pay at penal rates and, therefore, affects the banks’ costs.

The authorities could also vary the ceiling for the so-called open market operations, but they do not seem to have done so to any significant extent. This is obviously because it is the combined ceiling on normal rediscount and open market operations that is really relevant for most purposes. Since the open market operations as such are merely technical and smoothing operations, not much would be gained by varying the ceiling on open market operations rather than the rediscount ceiling. Though the French authorities have not made many significant changes in that direction, they could possibly make changes in the types of asset which could be mobilized hors plafond or in the cost of mobilizing these assets. Similarly, they could vary the rate at which, or the conditions under which, 30-day advances are made available to the banks. They could also vary the conditions for the acceptability of paper for rediscount. They have used this instrument to mitigate the tightness of the call money market since mid-1964.

With regard to the structure of bank assets, the authorities could vary the planchers for holdings of Treasury bills and the coefficient de trésorerie, which covers the holdings of all liquid assets including Treasury bills. As a result of the low yield on Treasury bills, banks generally maintain only a small margin of Treasury bill holdings above the planchers and hold a correspondingly larger proportion of medium-term bills to make up the coefficient de trésorerie. Variations in either of these two ratios would, therefore, tend to affect the banks’ holdings of both types of asset and bring about corresponding changes in their capacity to obtain assistance at the various rates discussed above.

Apart from these measures, the French monetary authorities can exercise direct control over the volume of bank credit in the economy by putting limits to the credit created by each bank. They did this once in February 1958, and such limits have again been in operation since early 1963. These limits are determined by permitting banks to expand credit over a given period by not more than a prescribed percentage. Banks expanding credit by more than this percentage have been penalized by a reduction of not less than 10 per cent in their rediscount ceilings. Some flexibility has been introduced into this system since July 1964 by fixing monthly limits for credit expansion that take seasonal needs into consideration within the framework of the average rate of credit expansion considered permissible.

The system of French credit control instruments described above is, broadly speaking, that which is in existence at the present time. It has not always been in existence nor was it introduced at any one time. Rather it is the result of a process of evolution over the period since World War II. It is useful to trace this evolution because it throws considerable light on the course of call money rate movements and the growth of credit over this period.

Evolution of Control

Ceilings for rediscounts at the official discount rate were first fixed formally for all banks under special regulations issued in 1948, though the central bank had operated an informal system of ceilings for some banks even earlier. The purpose of the latter was to prevent individual institutions from resorting to accommodation not warranted by their own resources. The ceilings imposed on all banks in 1948 had for the first time the object of limiting the aggregate of rediscounts as an instrument of credit policy, individual ceilings being fixed in the light of the predetermined aggregate. Until 1951, the ceilings were applied only at the end of each month and banks were free to exceed them during the course of the month. As a result, given the extremely heavy pressure of demand for credit which the banks had to face, actual rediscounts during the course of the month tended to become increasingly higher than the ceilings. This, of course, implied that the excess credit had to be repaid at the end of the month. At first, such repayment could be made without difficulty, but in due course it became possible only because of equivalent open market purchases by the central bank. As explained earlier, open market operations are considered to be merely technical and smoothing out operations. However, under the prevailing conditions, they started taking on the character of longer-term assistance. In order to restore the technical character of the open market operations, the central bank pushed up the ceiling on rediscounts from time to time, but this only meant that the latter was being ineffective in achieving its object, which was to control the total volume of credit in the economy.

To restore the effectiveness of their control over credit in the economy, the French authorities decided in October 1951 to impose the rediscount ceiling continuously instead of only at the end of each month. Ceilings for the supplementary assistance provided by open market operations were also fixed for the first time. At the same time, the authorities introduced the arrangement by which a bank could obtain assistance in excess of the ceiling by selling bills en pension to the central bank at a penal rate. At first, there was only one penal rate (taux d’enfer), borrowings in excess of the ceiling at this rate being permitted only up to 110 per cent of the ceiling. The introduction of this system at a time when rediscounts during the course of each month were far in excess of the ceilings would have created difficulties for the bank. Therefore, the authorities simultaneously raised the existing ceilings substantially.

It was nearly six years later, in April 1957, that the second penal rate (taux de superenfer) was introduced for the first time. This was applicable to borrowings above 110 per cent of the prescribed ceiling. It is significant that the total of the rediscount ceilings, which had climbed steadily from NF 1,850 million in 1951 to NF 6,200 million, was reduced by as much as 35 per cent in the second half of 1957—very shortly after the introduction of the second penal rate. A system under which banks could not obtain any assistance from the central bank once they had reached 110 per cent of the ceiling would clearly have created considerable hardship in a situation in which the ceiling had just been lowered substantially. The introduction of the taux de superenfer overcame this problem while making the banks pay at the new higher penal rate for any additional accommodation that they might obtain. This created the necessary incentive for them to cut down the volume of their indebtedness to the central bank.

The determination of the monetary authorities, at this time, to enforce a contraction of credit through the use of the instruments at their command is reflected in the various steps that were taken by them in 1957 and 1958. The discount rate, which had been lowered to 3 per cent on December 2, 1954, was raised to 4 per cent on April 11, 1957, and the taux d’enfer was raised at the same time from 5 per cent to 6 per cent. Only a few days later, on April 30, 1957, the taux de superenfer was introduced for the first time and fixed at 7 per cent. The rediscount ceilings were lowered by 20 per cent in two equal steps in June and July. On July 22, 1957 the taux de superenfer was raised to 10 per cent. A few days later, on August 12, 1957, the discount rate and the taux d’enfer were raised by one percentage point each to 5 per cent and 7 per cent, respectively. The interest rate structure was now composed of a discount rate of 5 per cent and two penal rates of 7 per cent and 10 per cent. In November, the rediscount ceilings were lowered further, so that they were now 65 per cent of their height in June. The structure of interest rates remained unchanged for a few months, but on April 17, 1958 the penal rates were raised still further, to their peaks of 8 per cent and 12 per cent.

The first step back to a lower level of rates was taken on July 28, 1958, when the taux de superenfer was reduced to 10 per cent, this being followed on October 16 of the same year by the reduction of the discount rate to 4.5 per cent and the taux d’enfer to 7 per cent. Other changes in the structure of official interest rates have been made from time to time since then. These can be followed in Chart 1. It needs to be mentioned, however, that the discount rate and the taux d’enfer, which had been reduced to 3.5 per cent and 4.5 per cent, respectively, in October 1960, were raised in January 1964 to 4 per cent and 5 per cent, respectively. At this time, also, it was decided that the discount rate for Treasury bills, which had previously been 3 per cent, would henceforth be determined by the Governor of the Bank of France, who put it at a level above the periodic tender rate for Treasury bills. Thus, it became in effect a penal rate.

The system of minimum holdings of Treasury bills (planchers) was first introduced simultaneously with the introduction of the rediscount ceilings in 1948. The primary object of this system was to ensure that the banks did not reduce their holdings of Treasury bills, whether by rediscount or through maturity, in order to increase their credit to the private sector. Initially, the planchers were fixed at the level of actual holdings of Treasury bills on September 30, 1948 with a provision that 20 per cent of any increase in deposits since that date should be invested in Treasury paper. The average ratio worked out at about 28 per cent, though it declined a little as deposits increased. In 1956, the system was revised and banks were required to hold a minimum of 25 per cent of their deposits at any time in Treasury paper.

During 1959 and 1960, there was a substantial increase in bank holdings of medium-term paper, rediscountable with the central bank hors plafond. At the beginning of 1960, these holdings reached NF 4,000 million. Some method of controlling the potential run on the central bank became necessary. The Conseil National du Crédit, therefore, decided to introduce a new minimum ratio, the coefficient de trésorerie, which could be varied by the Bank of France between limits which are at present 15 per cent and 38 per cent. This new minimum ratio covered bank holdings of cash, Treasury bills, and paper mobilizable with the Bank of France hors plafond; it came into effect on January 21, 1961 and was fixed initially at 30 per cent. As bank holdings of Treasury bills required to satisfy the planchers were included in the coefficient de trésorerie, and as French banks keep only a small margin of Treasury bills above the planchers, the coefficient de trésorerie in effect immobilized a given volume of bank holdings of medium-term paper.

Before the coefficient de trésorerie was introduced, many banks, particularly the small ones, held very little medium-term paper. The substantial increase in bank holdings of medium-term paper mentioned above reflected mainly the portfolios of the large banks. The medium-term paper held by the specialized institutions also increased substantially over this period. As these institutions could rediscount this paper with the Bank of France without limit, these holdings constituted an equally great threat to the control of the authorities over the money supply in the economy. The introduction of the coefficient de trésorerie dealt with this problem also by inducing the banks, particularly the large number of small ones, to take over some part of this paper from these institutions.

When the coefficient de trésorerie was introduced, the planchers were reduced from 25 per cent to 20 per cent. On June 30, 1961 they were reduced to 17.5 per cent and on March 31, 1962 to 15 per cent. In January 1964, they were further reduced to 13 per cent. In the meanwhile, the coefficient de trésorerie was raised to 32 per cent on February 28, 1962 and further to 36 per cent in two steps in 1963. It is clear that the volume of medium-term paper immobilized in bank holdings depends on the gap between the planchers and the coefficient de trésorerie. Over this period, the widening of this gap could be brought about more by a reduction in planchers than by an increase in the coefficient de trésorerie, mainly because of the increasingly favorable fiscal position of the Treasury.

Formation of the Call Money Rate

The structure of official interest rates and the prescribed asset requirements together determine the conditions under which the banks can borrow from the central bank. As the central bank is an alternative to the call money market for the banks and other financial institutions both as a source and for the use of funds, there should be a rather powerful link between the various official rates and the rate prevalent in the call money market. However, the factors affecting this link are quite complex. They include the nature of the call money market, on the one hand, and the conditions governing the choice between the alternative sources and uses of funds, on the other.

In the first place, commissions are payable to the brokers and discount houses through which business in the call money market is transacted. The total cost of borrowing is to that extent higher than the call money rate. It is this higher cost rather than the call money rate as such that is the relevant element to be considered in any study of the relationship between the call money market and the official market for liquidity.

Also, it is likely that the call money market is far from being a perfect market. Frictions of all kinds probably prevent the forces of demand and supply from making their full presence felt on the actual rate of interest evolved in the market. One source of potential friction is the lack of adequate information on the part of participants about the liquidity position of other participants. Another is the difference in the size of different institutions operating in the market. The volume of funds available in the market certainly fluctuates from day to day and may sometimes be relatively small. As a result, the prevalent rate may not always reflect the actual demand for and supply of funds, some portions of which may be kept off the market by participants afraid of disturbing unduly the going rate.

An explanation of the call money rate in terms of the alternatives to the call money market which the central bank provides is made difficult by the fact that the choice between the two is not always a simple one. Call money transactions are extremely short-period transactions, though renewable perhaps at the rate prevalent at the time of renewal. Some of the arrangements under which assistance can be obtained from the central bank may be for longer minimum periods, or may even be irreversible. Thus, the debt represented by the rediscounting of a bill cannot be extinguished except automatically on the maturity of that bill. Borrowing at the penal rates is for a minimum period of two days. Again, assistance from the central bank may be subject in certain cases to prior approval or other restrictions. Thus, the choice between the various methods of obtaining needed liquidity or utilizing excess liquidity is affected not merely by the scope for doing so and the costs or returns involved but also by differences in the other characteristics of the specific alternative open at the given time and the nature of the circumstances prevailing at that time.

Keeping these limitations in mind, an attempt can now be made to show how the call money rate in France is determined. It can be assumed first that borrowing hors plafond against export paper would be carried out to the extent that such paper is available for this purpose, in preference to other methods of obtaining liquidity, because of the lower costs involved. On the other hand, 30-day advances are probably of limited relevance, because of the strict conditions governing them, in spite of the fact that they were made at a lower interest rate until January 1964. It can be assumed further that French banks have generally utilized a major portion of the rediscount facilities available to them under the ceilings.

In these circumstances, it can be said that the call money rate will be lower than the discount rate if (1) all banks are well within their rediscount ceilings and (2) all of them have in their possession sufficient paper, after satisfying the planchers and the coefficient de trésorerie, of the kind which can be used to obtain additional assistance from the rediscount institutions at the official discount rate. In these circumstances, borrowing banks would not ordinarily be willing to pay more than the discount rate, while lenders might be willing to lend surplus funds in their possession at these rates, either because they are unwilling in view of the temporary character of their surplus position to reduce their indebtedness to the central bank or because they are not in a position to do so, given the nature of their indebtedness. Some of the institutions which are generally lenders in the call money market may have no outstanding indebtedness to the central bank and would thus welcome any return they could obtain on temporary surpluses in their possession.

The call money rate will tend to rise above the discount rate if an increasing number of banks come close to their rediscount ceilings or find themselves with inadequate supplies of paper which is rediscountable at the ordinary discount rate given the prevailing planchers and coefficient de trésorerie. The cost of mobilizing medium-term paper, rather than the taux d’enfer, may be the relevant rate toward which the call money rate tends so long as surplus holdings of mobilizable medium-term paper are available with the banks. However, as these supplies become exhausted, the alternative to borrowing in the call money market is to obtain assistance from the central bank at the taux d’enfer. If the rediscount ceilings are exceeded by over 10 per cent by banks whose individual ceilings add up to a large proportion of the total, the taux de superenfer becomes relevant and the call money rate may reach extremely high levels relative to the basic discount rate.

Day-to-day fluctuations in the demand and supply position in the call money market and in the possibilities of obtaining assistance from the central bank tend to cause rather sharp fluctuations in the daily call money rate. Ordinarily, the maximum monthly call money rate may be expected to remain below the taux de superenfer, exceeding it only in exceptional circumstances of stringency in the market. Similarly, the minimum monthly call money rate should remain at or above the low rates of yield on Treasury bills and/or the rates at which either 30-day advances are available from the central bank or export paper can be rediscounted with it. Since early in 1964, Treasury bills in excess of the banks’ minimum requirements have been issued periodically by tender; this has added an element of flexibility to the call money market. The average monthly call money rates undoubtedly depend upon the more basic elements in the whole situation, such as the extent of bank indebtedness to the rediscount institutions relative to the rediscount ceilings. Since such indebtedness has in general remained close to the ceilings in spite of variations in these ceilings from time to time, the monthly average call money rate may be expected normally to remain above the official discount rate.

Discount Rate and Call Money Rates, 1948-63

The call money rate in France fluctuates quite sharply within each month.11 This is reflected in the range between the monthly maximum and the monthly minimum call money rates which are presented in Chart 2. The monthly maximum call money rate appears in general to have remained within the taux d’enfer but to have exceeded it from time to time. On occasion, the maximum rate has risen to extremely high levels, becoming greater even than the taux de superenfer. The monthly minimum call money rate remains in general below the discount rate, but did not, until 1964, fall below the low rate which prevailed for 30-day advances.

Chart 2.
Chart 2.

France: Maximum, Minimum, and Average Call Money Rate, Monthly, 1959–63

(In per cent per annum)

Citation: IMF Staff Papers 1965, 003; 10.5089/9781451969061.024.A004

The monthly average call money rate (Chart 3) was generally below the discount rate until 1953 and generally above the discount rate thereafter. The explanation for this is to be found in the changes in the system of rediscount ceilings which were made in 1951. At that time, the rediscount ceilings were made applicable continuously, instead of only at the end of each month. The system of penal rates for bank borrowing in excess of the rediscount ceilings was also introduced at that time (see above, p. 396). The simultaneous increase in the rediscount ceilings prevented this change from having an immediate impact on the monthly average call money rate. However, by 1953, the banks probably started to press rather continuously on their rediscount ceilings, and the penal rate became rather frequently a relevant rate for the determination of the call money rate.

Chart 3.
Chart 3.

France: Discount Rate and Monthly Average Call Money Rate, October 1948–December 1963

(In per cent per annum)

Citation: IMF Staff Papers 1965, 003; 10.5089/9781451969061.024.A004

The monthly average call money rate started to rise rather sharply in March 1957 and continued to rise, though in a fluctuating manner, until May 1958, when it reached a peak of 10.04 per cent. The explanation for this upward movement is to be found in the sharp reduction in the rediscount ceilings at that time and in the accompanying introduction of the taux de superenfer and successive increases in the discount rate and both penal rates (see above, pp. 396–97). What is particularly striking is the fact that over most of that period the monthly average call money rate was significantly higher in relation to the discount rate than at other times. This is clearly a reflection not merely of the height of the penal rates—and these were certainly rather high—but also of their effectiveness over the period as a result of the rather drastic reduction in the rediscount ceilings.

The monthly average call money rate started to fall after May 1958. The taux de superenfer was reduced on July 28, 1958 from 12 per cent to 10 per cent. However, the discount rate was first reduced from its existing high level only in October 1958, by which time the call rate had fallen to 5.50 per cent from the May peak of 10.04 per cent. This movement of the call money rate supports the view expressed earlier that in the long term the height of the ceilings and of the penal rates has a greater effect in limiting the volume of bank borrowing from the central bank than in raising the costs of such borrowing. In the short run, the height of the ceiling and of the penal rates does have an influence on the costs of the banks. However, when the ceiling is lowered banks tend to cut down their borrowing from the central bank as soon as possible in order to avoid the high costs of borrowing at penal rates. Since the call money rate depends on the cost of bank borrowing from the central bank, it tends to fall to a longer-run level which is basically dependent upon the level of the discount rate.

It is apparent from a study of Chart 3 that the monthly average call money rate fluctuates quite sharply from month to month, even during periods when the discount rate is constant. These fluctuations are due to the fact that the call money rate is subject to the influence of a variety of factors—in addition to the discount rate—affecting both the demand for and the supply of funds. Official changes in the rediscount ceilings and penal rates and in the various asset ratios are among these factors, but there are many others.

In spite of the fluctuations from month to month in the monthly average call money rate, this rate seems to show a tendency to move with the discount rate. The relationship between the discount rate and the monthly average call money rate was therefore subjected to statistical examination, and some interesting results were obtained.

When the discount rate and the monthly average call rate were correlated with each other for the period from October 1948 to December 1963, it was found that the coefficient of determination adjusted for degrees of freedom (R¯2) was 0.687. However, it was found also that there was a significant degree of serial correlation between the residuals. When adjustment was made for this,12 the coefficient of determination (R¯2) fell to only 0.275.

It has been shown above that certain institutional changes in France during the period 1951–52 changed the pattern of the relationship between the discount rate and the call money rate. The relationship between the discount rate and the call money rate was, therefore, studied separately for the two subperiods, October 1948-December 1952 and January 1953-December 1963. The coefficients of determination adjusted for degrees of freedom (R¯2’s) for these two periods were found to be 0.768 and 0.634, respectively. However, serial correlation was again found to be present in the residuals for both these periods. When the necessary adjustment was carried out, the coefficients of determination (R¯2) were found to be 0.434 and 0.277, respectively.

In these calculations, the discount rate, which remains constant for varying periods, was correlated with the monthly average call money rate, which fluctuates from month to month. The hypothesis being tested was that the discount rate is an important determinant of the monthly average call money rate. However, the monthly average call rate during any given month, like the daily call rate, is influenced by a wide variety of factors, as has been explained above. Central banking theory, as well as the examination of the French call money market in earlier sections of this paper, suggests that the better hypothesis would be that the discount rate determines the general level of the call money rate rather than its monthly average. To test this hypothesis, the discount rate was correlated with the average of the monthly average call money rate for each of the periods for which the discount rate was constant (Chart 1). The coefficient of determination (R¯2) for the fourteen observations thus obtained for the entire period October 1948 to December 1963 was 0.791 with no significant serial correlation present between the residuals.

All these results are summarized in Table 4, which shows also that the regression coefficients are generally high, being as much as 1.53 for the final computation, and that the T-ratio in each case is quite large.

Table 4.

France: Discount Rate and Call Money Rate, Regression and Correlation Results1

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C = a + bD, where C = call money rate and D = discount rate.

On the basis of the Durbin-Watson Test, it was found that no adjustment for serial correlation was necessary. The period averages are the averages of the monthly average call money rate for each of the periods of varying lengths for which the discount rate was unchanged.

It can thus be concluded that there appears to be a close relationship between the discount rate and the call money rate in France, the discount rate being, however, a more important determinant of the long-period average level of the call money rate than of its monthly average. The available evidence suggests further that, given the other instruments at their command, the French monetary authorities are in a position to control the extent to which the discount rate is an effective determinant of the level of the call money rate.

Le marché de l’argent à vue en France


Les banques et autres institutions financières françaises équilibrent les excédents et les déficits temporaires de trésorerie en se prêtant ou en s’empruntant mutuellement de l’argent au jour le jour sur le marché de l’argent à vue. Le recours à ce marché peut remplacer l’appel à la banque centrale, tant du point de vue des sources que de l’emploi des fonds. Comme dans les autres pays, les positions de liquidité des banques, qui déterminent leur recours à la banque centrale ou au marché de l’argent à vue, sont affectées par 1) les variations du volume de la monnaie fiduciaire, 2) les mouvements d’or et de devises, et 3) les opérations du Trésor.

Les emprunts bancaires effectués auprès de la banque centrale audessous du plafond de réescompte sont soumis au taux d’escompte normal; au-dessus de ce plafond, ils sont passibles de deux taux de pénalisation. Certains types d’effets peuvent être mobilisés hors plafond. Les banques ont également l’obligation de maintenir certains coefficients d’actif minima: 1) des planchers afférents aux avoirs en bons du Trésor et 2) un coefficient de trésorerie relatif aux avoirs en espèces, bons du Trésor et 2) un coefficient de trésorerie relatif aux avoirs en espèces, bons du Trésor et effets mobilisables hors plafond auprès de la banque centrale.

La banque centrale peut varier les coefficients d’actif minima, les taux officiels d’intérêt et le plafond de réescompte. Elle peut ainsi affecter à de nombreux égards le volume et le coût des prêts qu’elle consent aux banques. Le taux de l’argent à vue ne dépend donc pas seulement du taux officiel d’escompte. Généralement, toutefois, si un grand nombre de banques ont atteint leurs plafonds de réescompte, le taux de l’argent à vue aura tendance à dépasser le taux d’escompte, et parfois même les taux de pénalisation.

Des études de corrélation pour la période allant d’octobre 1948 à décembre 1963 semblent indiquer que le taux d’escompte et le taux de l’argent à vue sont étroitement liés, mais que le taux d’escompte est un facteur plus important pour déterminer le niveau moyen du taux de l’argent à vue pour chaque période pendant laquelle le taux d’escompte demeure constant que pour déterminer la moyenne mensuelle du taux de l’argent à vue.

El mercado de dinero a la vista en Francia


En Francia, los bancos y otras instituciones financieras equilibran sus superávit o déficit temporales de numerario mediante los préstamos que se otorgan los unos a los otros en el mercado de dinero a la vista. Dicho mercado puede reemplazar al Banco Central, desde el punto de vista tanto de las fuentes de los fondos como del uso que se hace de ellos. Como en otros países, la situación de liquidez de los bancos, la cual determina el que recurran éstos al banco central o al mercado de dinero a la vista, resulta afectada por (1) los cambios operados en el volumen de la emisión fiduciaria, (2) los movimientos de oro y divisas, y (3) las transacciones del Tesoro.

Los préstamos que los bancos obtienen del banco central por debajo del límite máximo de redescuento, están sujetos a la tasa de descuento normal, y pasado ese límite a dos tasas de multa. Existen ciertas clases de efectos que pueden movilizarse fuera del límite máximo. También se exige a los bancos mantener ciertas proporciones mínimas de activos, a saber: (1) proporciones mínimas de tenencias en letras del Tesoro, y (2) el coeficiente de liquidez relativo a las tenencias de numerario, letras del Tesoro, y efectos movilizables con el banco central fuera del límite máximo.

El Banco Central puede variar las proporciones mínimas de activos, las tasas de interés oficiales, y el límite máximo de redescuento. De ahí que pueda influir, de diversos modos, en el volumen y costo de los préstamos obtenidos por los bancos. Por consiguiente, la tasa de dinero a la vista no depende tan sólo de la tasa oficial de descuento. Por lo general, no obstante, cuando son muchos los bancos que han agotado sus límites de redescuento, la tasa de dinero a la vista tiende a sobrepasar a la de descuento y a veces hasta supera a las tasas de multa.

Los estudios realizados sobre lá correlación entre la tasa de descuento y la de dinero a la vista para el período comprendido entre octubre de 1948 y diciembre de 1963, parecen indicar que ambas guardan estrecha relación entre sí, pero que la tasa de descuento resulta ser un factor más importante para determinar el nivel promedio de la tasa de dinero a la vista en cada período en que la tasa de descuento se mantiene invariable, que para determinar el promedio mensual de la tasa de dinero a la vista.


Mr. Ezekiel, economist in the Research and Statistics Department, is a graduate of the University of Bombay. He taught economics at St. Xavier’s College, Bombay, and at the Department of Economics, University of Bombay, and was Financial Editor of The Economic Times. He has published several articles in economic journals.


Thus, “the money market … is defined in France as the market for liquidity in the form of Central Bank balances;” see European Economic Community (EEC), “The Instruments of Monetary Policy in France,” The Instruments of Monetary Policy in the Countries of the European Economic Community (Brussels, 1962), p. 116.


The only nonfinancial institution which has access to the call money market is the nationalized railway system, the SNCF. On the other hand, the Treasury, which in France (in addition to its fiscal operations) operates in many respects like a bank, does not operate directly in the call money market.


The commercial bills covered by this term include medium-term equipment, construction, and export paper.


The sale of a bill en pension is a sale with an agreement to repurchase after a specified period—usually quite short, e.g., a day or two. The effect of this double transaction is that the original buyer provides credit to the original seller of the bill for that period against the security of that bill.


A detailed examination of the forms, instruments, and institutions through which the banks obtain assistance is to be found in P. Grivet, La Mobilisation des Crédits Bancaires en France (Paris, 1962).


For French banks, borrowing or lending in short-term money markets abroad does not appear to be a relevant alternative method of obtaining or using liquid resources. The French banks “do not, strictly speaking, maintain foreign exchange portfolios. Nor are they authorized to convert into francs the currency they borrow from their own foreign correspondents”; see EEC, op. cit., p. 116.


Outflows and inflows are understood here to be net of Treasury issue of bills to banks and specialized financial institutions. However, insofar as the specialized institutions rediscount with the Bank of France bills purchased by them, there is an additional expansionary effect on the liquidity of the banks. In other words, the expansionary or contractionary effect of the Treasury’s operations in this connection should really be measured by changes in the Treasury’s net indebtedness to the central bank even if some parts of these changes take place indirectly through the banks and other specialized institutions.


Much of the information on which this section is based has been drawn from the Conseil National du Crédit, Annual Reports, 1948–63.


Paper obtained by the Bank of France through its open market operations is shown in its balance sheet under the heading “Negotiable Paper Purchased in France.” The total value of such paper has for several years fluctuated between NF 2,000 million and NF 3,000 million. However, see pages 395–96, below.


Since early in 1964, bills which the banks are obliged to take to satisfy the planchers are described as “Treasury certificates.” Only bills to which the banks subscribe in excess of the minimum limits now bear the name “Treasury bills.” The latter are now issued periodically by tender. However, the discussion in the text continues to use the term “Treasury bills” in the wider meaning.


Data on call money rates over this period have been obtained from the Conseil National du Credit, Annual Reports, 1948–63.


The existence of serial correlation was determined by applying the Durbin-Watson Test. Adjustment was made for the presence of serial correlation by using the method presented by L. R. Klein, A Textbook of Econometrics (New York, 1956), p. 159.

IMF Staff papers: Volume 12 No. 3
Author: International Monetary Fund. Research Dept.
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    France: Structure of Official Interest Rates and Level of Call Money Rate, October 1948–December 1963

    (In per cent per annum)

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    France: Maximum, Minimum, and Average Call Money Rate, Monthly, 1959–63

    (In per cent per annum)

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    France: Discount Rate and Monthly Average Call Money Rate, October 1948–December 1963

    (In per cent per annum)