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Public debt as private liquidity: the Poincaré experience (1926–1929)

Published online by Cambridge University Press:  22 January 2024

Aurélien Espic Open the ORCID record for Aurélien Espic [Opens in a new window]
Aurélien Espic*
Affiliation:
Banque de France and Aix-Marseille University
*
Aurélien Espic, Banque de France, 75001 Paris, France, and Aix-Marseille School of Economics, Aix-Marseille University, 13005 Marseille, France, email: [email protected].
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Abstract

In the follow-up to the 1926 political and monetary crisis in France, a new government led by Raymond Poincaré attempted to restore monetary stability by restructuring public debt. A sinking fund was missioned to withdraw short-term public bills from money markets. This policy disorganized the largest Parisian banks of the time, as they relied on these bills to manage their liquidity. Without developed domestic money markets, no other asset could absorb the excess liquidity freed by the withdrawal of these bills, and these leading banks faced a low-rate environment. In search of yield, they expanded their activities abroad a few months before the 1929 crash. These findings renew our understanding of the expansion of France's banking sector in the 1920s. In addition, they shed new light on the role of public debt in financial stability in an open economy.

Keywords

public debtliquidityinternational financeinterwar

JEL classification

N14: Europe: 1913– N24: Europe: 1913– E44: Financial Markets and the Macroeconomy G21: Banks • Depository Institutions • Micro Finance Institutions • Mortgages
Type
Article
Information
Financial History Review , Volume 30 , Issue 3 , December 2023 , pp. 308 - 329
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Copyright
Copyright © The Author(s), 2024. Published by Cambridge University Press on behalf of the European Association for Banking and Financial History

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Footnotes

For their very insightful comments and suggestions the author thanks the editors, two anonymous reviewers, Pierre-Cyrille Hautcoeur, Eric Monnet, Angelo Riva, Pierre Sicsic and Stefano Ungaro. The author would like to acknowledge his debt to archivists at the Banque de France, the Ministry of Finance and Crédit Lyonnais. The views expressed in this article are those of the author and do not necessarily reflect the views of the Banque de France, nor of the Eurosystem.

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