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X£*307 ~~~\
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I
July 12, 1967.
I CAPITAL MARKET DEVELOPMENTS ABROAD
i
II.
III.
I.
France:
France
Ten Charts on Financial Markets Abroad
Latest Figures Plotted in H.13 Chart Series, 1967
Money and Capital Market Developments in France, June 1966-June 1967
The structure of interest rates in France underwent a major shift
in June 1966, when the Finance Ministry allowed yields on new public sector
bond issues to rise by approximately 50 basis points. This move was made in
response to rising interest rates abroad and the increasing borrowing requirements of the public sector. Average yields on outstanding public sector bonds,
which stood at 6,43 per cent in May 1966, reacted sharply in June and continued
to rise throughout the remainder of the year, reaching 6.79 per cent in December,
In 1967, yidds on these bonds declined very slowly and at the end of May averaged
6.67 per cent.
In the Paris money market, day-to-day money rates declined slowly
through the summer of 1966, but from September onward, in response to the
pressure of high interest rates abroad and removal of ceiling on the money
rate, they began to rise sharply and increased from 4.60 per cent in September
to 5,70 per cent in December. In 1967 the money market remained tight and
at first money rates declined only very gradually. In May and June the
authorities moved to ease the bank liquidity positions and the decline in
interest rates accelerated. The day-to-day rate averaged 4.25 per cent in
the first three weeks of June.
In general, French capital markets have remained quite tight over
the past year or so. New money raised in 1966 showed an increase of only
2.5 per cent over 1965, and in 1967, the increase in the first 4 months was
even smaller, 1.4 per cent over the corresponding period of 1966. In MayJune the government launched a 1.25 million francs Equipment Loan which was
reportedly poorly received.
The stock market, despite the variety of tax inducements enacted
earlier by the government, remained virtually on a plateau during the second
half of 1966, and resumed its long decline, which started in 1963, in the
first half of 1967.
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(Decontrolled after six months)
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The hardening of the French monetary policy in the fall of 1966
was motivated by the emergence of a deficit in the balance of payments in
the second half of 1966, following several years of surpluses. So far in
1967, the French authorities consider the balance of payments to be in
approximate equilibrium, but the absence of surpluses is causing the
authorities to move quite cautiously towards more monetary ease.
The turn of the year saw the introduction of several important
structural changes in French financial markets. On January 21, the French
commercial banks were made subject to obligatory cash reserves, which will
replace the system of compulsory Treasury bill holdings by September 1. At
the same time, the banking system was made more competitive by narrowing
the legal distinctions between commercial and mixed commercial-investment
banks. Finally, on January 31, the system of exchange controls was virtually
abolished and imports and exports of gold freed. In January 1966 a new
housing scheme (epargne-logement) was introduced and proved to be an
immediate success; and in the fall of 1966 a secondary mortgage market,
Marche Hypothecaire, was set up under supervision of the Credit Foncier.
The turnaround last year in France's balance of payments was
reflected in the French official reserves. In July-December 1966, net
foreign assets of the monetary authorities declined by $205 million and
in the months January-May 1967, reflecting much smaller balance of payments
deficits, declined about $80 million. The rate for spot franc in the second
half of 1966 also mirrored the balance of payments developments. After a
prolonged period of hovering around its upper limit, the spot franc started
to decline sharply from August 1966 reaching a low of 20.171 U.S. cents in
mid-December. After a slight rise, the spot franc remained steady just
below par through the first quarter of 1967 only to start to rise sharply
in April. In June, the franc was again nearly at the upper limit. The
reasons for this latest rise in the franc rate are not yet clear.
Money market rates rose sharply in late 1966
In the two years prior to the summer of 1966, French financial
markets were nearly immune to the rising interest rate trends prevailing
in the majority of the other industrial countries during that period. Although
French credit conditions had been tightened in 1963 as part of the stabilization
program, after mid-1964 they were relaxed as economic activity in France leveled
out and were kept relatively easy in order to avoid unwanted inflows of shortterm capital.
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Policy shifts leading to higher interest rates began to be
implemented in June 1966, when bond yields were raised very abruptly.
During the third quarter of last year the Paris money market tightened,
but while money market rates did not rise, the commercial banks found it
necessary to increase substantially their net foreign liabilities in order
to augment liquidity in domestic currency. At the end of September, however,
the Bank of France began to raise the rate at which it provides special
accommodation, through the open-market window, to ease month-end tightness.
This rate, which was an effective ceiling to money market rates, had been
maintained at 4-7/8 per cent since April 1965, and as it was raised money
market rates rose steeply as 1966 drew to a close. The monthly average
rate for day-to-day money rose from 4.60 per cent in September to 5.70 per
cent in December, as shown in Table 1.
Table 1,
France: Day-to-Day Money Rates, 1966-67
(per cent per annum)
Monthly
Average
1966 - June
July
August
September
October
November
December
1967 - January
February
March
April
May
June—
4. 78
4.78
4.77
4.60
5.27
5.41
5.70
5.58
5.05
5.00
5.07
4.89
4.25
Rang u
1967 - April
May
June
7
12
19
26
3
11
18
24
31
7
14
21
4.750
5.000
4.000 - 4.375
5.000 - 5.375
4.750 - 5.000
4.875
4.500 - 4.750
4.500
4.875 - 5.000
4.500
4.000
4.250
If Through June 21 only.
2/ Variations in daily rates in week ending on dates shown (Wednesdays).
Sources: Conseil National du Credit, Bank of France.
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This more restrictive French monetary policy seems to have been
motivated by balance of payments developments. The French external accounts
shifted into deficit rather suddenly in the summer of 1966, and reports
suggest the authorities were anxious to minimize losses of official reserves
by reducing incentives for capital outflows.
The Treasury bill market likewise tightened late last year.
As late as August, the Treasury was able to auction 90-day bills at 3.20 per
cent or less. Following a suspension of nearly three months, auctions were
resumed in November, at which time 180-day bills (90-day bills were no
longer offered) brought yields of 4.50 per cent. (See Table 2.) This run-up
in auction rates stemmed not only from the general trend of credit conditions
but also from anticipation of impeding reform of French monetary controls
that would force the Treasury to offer more bills at the auctions.
Table 2.
France;
Auctions for Treasury Bills, 1966-67
Maturities
(days)
1966 - Year
Jan.-May
Jun.-Dec.
Aug.
5
16
25
Nov. 1 5 ^
25
1967 - Jan.-May
Mar.
6
15
26
Apr. 5
17
25
my
5
16
25
June 15
90, 180, 360
360
90, 180
Amount
Amount
Offered
Accepted
(millions of francs)
3,800
3,749
850
2,950
799
2,950
90
90
90
180
180
400
400
400
250
250
400
400
400
250
250
360
4,650
4,632
360
360
360
360
360
360
360
360
360
360
300
500
300
350
450
350
300
400
250
250
286
481
293
350
450.
350
300
400
250
250
Average Rate
Applied
(per cent)
3.35
3. 16
3.40
3.20
3.16
3.13^/
4.50**/
4.47
4.95
5.19±^/
5.06
5.00
5.03
5.01
5.00
5.00
4.83
4.69
4.6lf/
*/ Low for the year.
**/ High for the year.
1/ Treasury bill auctions suspended from August 25 to November 15.
Source ; Bank of France.
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Monetary policy is cautiously relaxed in 1967
Since the beginning of the current year, monetary relaxation in
France has been limited, compared with the degree of easing that has occurred
in several of the larger Western countries and in the market for Euro-dollar
deposits. Over-all economic activity in France seems to have increased very
little since the summer of 1966 because of weakened export and consumer
demand. But credit conditions have been kept relatively tight because of
the continuing, albeit moderate, balance of payments deficit which a more
expansionary policy would widen further.
The call money rate dropped to an average of 5.05 per cent in
February in response to declines in foreign interest rates, seasonal influences,
and a loosening of bank liquidity connected with the advent of reforms of
monetary controls, but there was little further easing in the next three
months. In February the Bank of France reportedly intervened as a borrower
in the 30-day money market in order to keep rates from falling further. The
importance of the 30-day money market relative to the call money market has
risen since the recent introduction of cash reserve requirements. So far
in 1967 it has apparently been unnecessary for the Bank of France to extend
any large amount of special open-market accommodation to offset month-end
tightness, but the banks have had to rediscount in excess of quota and pay
the 4-1/2 per cent "enfer" ("hell") rate on the excess.
Some easing of policy is evident since about mid-May. The
coefficient d'emploi, the new regulation affecting commercial bank holdings
of medium-term paper (see below), was reduced on May 19 and again on June 21.
In addition, the Bank of France intervention rate (borrowing rate) for
30-day money, previously at or near 5 per cent, was lowered to 4-1/2 per
cent. In the market for 30-day money, the rate declined from 4-7/8 per cent
on May 18 to 4-1/2 per cent on June 21, and the call money rate also dropped
during this interval, from around 4-5/8 per cent to 4-1/4 per cent.
The auction rate for Treasury bills continued rising in the
opening weeks of this year and reached a peak of 5.19 per cent for 12-month
bills on March 6, but subsequently this rate began a gradual decline and
was 4.61 per cent on June 15.
Bond yields advance and remain high
French bond yields moved to higher levels in 1966c In June of
last year, the Finance Ministry concluded that higher yields would be
necessary on new bond flotations by public sector borrowers, and these
borrowers were authorized to offer bonds with yields to maturity
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approximately 50 basis points higher than had been customary for some time.
The decision to accept higher bond yields was probably taken in the light
of rising trends in bond yields in other countries and, perhaps, in view
of greatly enlarged public sector borrowing requirements as well.
In response to this development, yields on outstanding bonds
jumped sharply. The composite pre-tax yield on public sector issues, as
calculated by INSEE, rose from 6.43 per cent on May 31, 1966, to 6.72 per
cent on June 30, and then moved up to a peak -f 6.79 per cent on December 31.
(See Table 3.) Since then this yield has retreated only slightly to 6.67 per
cent as of May 31. As calculated by the Bank of France, the composite yield
on public sector bonds net of withholding tax (12 per cent on most issues)
advanced steadily until January 1967, reaching 6.45 per cent in the week of
January 19, after which the yield dropped to 6.39 per cent in the week of
June 5-9. The unweighted average of pre-tax yields on new public sector bond
issues was 6,81 per cent in the first five months of 1967, up from 6.26 per
cent in January-May 1966 (before the official decision to raise them by about
one-half percentage point) and about the same as the 6.82 per cent average
for the last half of 1966„
Table 3.
France: Bond Yields, 1966-1967
(per cent per annum)
INSEE Composite Pre-Tax
Yields, End-of-•Month
Public
Private
Sector
Sector—'
May
June
July
August
September
October
November
December
January
February
March
April
May
June 16
6,,43
6., 72
6., 60
6., 66
6.,71
6., 76
6C, 74
6. 79
6. 78
6. 73
6. 64
6. 72
6. 67
n.
7.. 34
7., 71
7.,63
7., 52
7.,69
7.,69
7., 66
7. 71
7.58
7. 59
7.47
7.55
7.54
n„ a.
Yields Calculated by
the Bank of France]/
Public
Private
Sector—/
5,,96
6..23
6..27
6..20
6., 30
6.•35
6., 42-/
6.,43
6.,44
6.43
6.,40
6„,41
6. 35
6. 39
6.,52
6,,83
6.,86
60, 66
6., 78
6. 79
6.,85
6.80
6» 74
6. 74
6.80
6.81
6. 77
6. 70
1/ Net of withholding tax; average of daily yields in the weeks ending
in the month shown.
2/ Excludes Treasury bonds.
3/ Part of the increase from the preceding month due to change in sample.
Sources; INSEE: Monthly Bulletin of Statistics, Bank of France and
Conseil National du Credit.
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New issues increased little in 1966 despite extensive tax relief
In 1966,new issues of bonds and shares rose only slightly over
the previous year despite the important tax benefits extended to the French
security owners by new legislation effective at the beginning of 1966. The
maximum effective income tax rate on interest from bonds is now rather less
than 25 per cent since the first 500 francs of bond interest is tax free
and the holder has the option of either including the remainder in his taxable
income or of paying a 25 per cent "forfeiture" tax on it, after which the
interest need not be declared. As regards dividends, the shareholder now
receives a tax credit (avoir fiscal) equal to 50 per cent of the dividend.
Ownership of stocks and bonds was also made more attractive through the
abolition last year of income tax exemptions previously enjoyed by Treasury
savings bonds (bons du Tresor), commercial bank time and saving deposits and
deposits with savings banks above certain limits. Finally, no tax at all
is levied on income from securities bought under 10-year savings contracts
with banks and brokers, provided the saver makes regular additions to his
portfolio and does not consume the income for 10 years.
Notwithstanding these efforts to enhance the attractiveness of
securities as financial assets, new money raised from public offerings of
securities rose by only 2.5 per cent in 1966. (See Table 4.)
Table 4. France; New Public Security Issues, 1965-67
(gross new money raised; billions of francs)
1965
1966
Change
(per
cent)
1966
Jan.Ajpr.
1967
Jan.Apr o
Change
(per
cent)
9.. 37
10,,62
+13.3
4,.43
4,57
+ 3.2
1. Bonds (excluding
Treasury)
Public Credit
Institutions
Nationalized
Enterprises
Other, Public Sector
Competitive Sector
Foreign
4., 16
5,,68
+36.5
2,. 63
2.50
- 4.9
2,,91
0., 66
1.,52
0,,12
2,,86
0., 63
1.,25
0,,20
- 0.2
- 0.5
-17.8
+66.7
1,.58
-29.1
0,,22
1.12
0.62
0.33
--
--
2. Treasury Bonds
L _00
1. 50
+50.0
--
3„ Shares and Partnership Certificates
5_.02
3. 66
-27.1
U ,10
1.04
- 5.5
15. 39
15. 78
+ 2.5
5. 53
5.61
+ 1.4
Total
Source:
Conseil National du Credit.
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+50.0
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The Treasury and the public sector credit institutions increased
their recourse to the bond market, but all other major categories of
borrowers drew less on the market than the year before. For the competitive
sector, totalflotationsof stocks and bonds slumped 25 per cento Last year,
the private sector's outlays for plant and equipment were up 7.1 per cent
over 1965, at current prices; this increase, and more, was apparently
financed by increases in retained earnings and depreciation allowances.
Capital markets remain tight in 1967
In the first four months of 1967, new issues were up only 1.4 per
cent over January-April 1966. Further indications of bond market weakness
have been the poor reception given to the 1967 National Equipment Loan,
subscription lists for which had to be left open for two weeks in contrast
to only three to four days needed to float similar loans in the two previous
years, and increased recourse to the Euro-bond market by French companies,
including nationalized firms. In early June it was announced that in the
future the private sector would be given a larger share of the total recourse
to the capital market.
National Equipment Loans floated by the French Treasury are a
relatively new feature of the capital market. Taking advantage of its
ability to borrow more cheaply than individual companies, the Treasury
acts as ai intermediary and relends the funds to industry at a rate close to
the coupon rate it offers to bondholders. Public corporations, particularly
Electricite de France, have received all or most of the proceeds of the
1966 and 1967 loans. The first National Equipment Loan in October 1965
raised 1 billion francs for 15 years at a 5-1/2 per cent coupon rate and
yield to maturity of 6.07 per cent. The second loan in October 1966 was
for 1.5 billion francs, for 15 years, at a coupon rate of 6 per cent and
a yield of 6.56 per cent. The 1967 loan, for which subscriptions were
opened May 29, was for 1.25 billion francs for 16 years. The coupon is
again 6 per cent, but according to press reports it appears that the
repayment premium has been increased so that the yield to maturity has
climbed to the neighborhood of 6. 75 per cent.
Since the liberalization of exchange controls early this
year, the French authorities have been more liberal in granting permission
to French companies to borrow in the Euro-bond market, and the difficulty
of raising long-term funds in France has led to increased French recourse
to that market. Electricity de France borrowed $30 million at the end of
January; the Citroen automobile company issued bonds for $20 million in
February; and the French National Railways entered the market for $30 million in May.
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Major financial reforms are instituted
Over the past year or more major reforms affecting French
financial markets have been initiated. The change which may have the
greatest long-run significance is the one now taking place in the area
of central bank controls over bank liquidity.
For the first time, French banks have become subject to cash
reserve requirements. These were introduced on January 21, 1967, when
minimum reserve ratios were set at 1-1/2 per cent against sight and
1/2 per cent against time deposits. The ratios were raised to 2-1/2 and
1 per cent, respectively, on April 21; they will be raised again onJuly 21, and are scheduled to reach 4-1/2 per cent on sight deposits and
2-1/2 per cent on time deposits by October 21. Required reserves are
kept in the form of non-interest-bearing deposits at the Bank of France,
As the cash reserve requirement takes hold, the long-standing
security reserve regulation, the Treasury bill "floor" (plancher) is
being phased out. Compulsory Treasury bill holdings, which had been reduced
from 25 to 5 per cent of deposits over the past decade, were lowered to
4 per cent of deposits on January 3 and to 3 per cent on April 1. The
schedule calls for further reductions to 2 per cent on July 1 and 1 per
cent on August 1 and the requirement will expire on September 1. The
banks are using the proceeds of maturing bills to build up their cash
reserves. The particular Treasury bills held to meet the "floor" are
acquired on tap at artificially low rates (e.g., 2.875 per cent for
1-year bills). As the plancher holdings are being reduced, the Treasury
is forced to turn to other sources to meet its short-term capital needs
and it has stepped up the volume of bills offered at auctions where banks
and some other financial institutions subscribe to bills on a voluntary
basis. Offerings in January-May of this year totaled 4,650 million francs
compared with 850 million francs a year earlier. Total auction offerings
through June 15, at 4,900 francs, were already 29 per cent higher than the
offerings of 3,800 million francs for the entire year 1966. (See Table 2.)
A second credit instrument affecting bank liquidity, the coefficient
de tresorerie, was abolished in January of this year. Virtually all the
assets held to meet this requirement--which amounted to 32 per cent of deposits
at the time of expiration--were medium-term paper and, to a much lesser degree,
Treasury bills (including those held to meet the plancher). While the French
authorities hope ultimately to do away with all reserve requirements based on
earning assets, an interim measure of a temporary nature was necessary to
forestall massive rediscounts of medium-term paper, to which the rediscount
ceilings do not apply* In these circumstances the National Credit Council
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subjected banks to a new regulation, the coefficient d'emploi, which
freezes medium-term paper in bank portfolios. The new coefficient d'emploi
•was initially set at 20 per cent of deposits, but was reduced to 19 per cent
on May 19 and 18 per cent on June 21.
The coefficient d'emploi has been set well below the level of
the old coefficient de tresorerie, but the volume of medium-term paper
eligible for rediscount is less than would appear from comparison of the
two levels because of a hardening of Bank of France rediscount policy at
the start of 1966. Since that time the Bank has refused to rediscount
paper with a remaining maturity of over three years, and has reserved an
option to apply penalty rates to rediscounts of paper with maturing between
two and three years. At that time, also, the maximum original maturity of
equipment and construction loans eligible for eventual rediscount at the
Bank of France was lengthened from 5 to 7 years, to encourage banks to
lend for longer periods.
In addition to these changes in bank cash and liquidity reserve
regulations, other reforms liberalized French banking operations in 1966.
A major distinction between the commercial banks and the mixed commercialinvestment- business banks (banques d'affaires) was removed by allowing the
commercial banks to accept deposits of over two years maturity and the
mixed banks to accept deposits at sight and with maturities of up to two years,
formerly prohibited. "In an effort to lower interest rates and promote competition between banks, the minimum (floor) interest rates on bank loans to
customers were abolished in April 1966. This move does not appear to have
been successful; effective interest rates did not come down, and in some
cases they may have increased. At the present time, proposals are being
considered that would raise or abolish the maximum rates that banks can
pay to depositors.
Several moves were also made to encourage residential construction
in 1966. The most promising measure seems to be the house savings scheme,
described in the following section. In addition, a mortgage market was set
up in the autumn, under the supervision of the Credit Foncier de France, in
which banks, nonbank financial intermediaries, and the Credit Foncier would
buy and sell mortgage loans meeting certain minimum term and maximum interest
rate standards to encourage lenders to meet these standards. In order to
activate this market, the Credit Foncier was allocated 100 million francs
out of the proceeds of the October 1966 National Equipment Loan; and the
Credit Foncier's access to the credit markets was broadened by authorizing
it to issue medium-term bonds. So far, the Credit Foncier has auctioned
200 million francs of 7-year bonds in January and another 200 million francs
of the like bonds in June, paying 5.72 and 5.42 per cent, respectively.
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A much-publicized step was the abolition of the former exchange
control laws on January 31, 1967. Whereas the old laws stated that transactions
with nonresidents were forbidden unless specifically allowed, the new and
much more liberal legislation frees foreign transactions in principle while
subjecting them to some exceptions to the general rule. Control will be
exercised over new security issues by foreigners in France, and this
rationing will probably be tight for a long time to come. Official approval
is necessary for French direct investments abroad. The exchange control
liberalization also freed imports and exports of gold, and allowed French
residents to keep accounts in foreign banks. Exporters are thus no longer
required to deposit their earnings of foreign currency with a French bank.
French banks have been freed of the obligation under which they had to maintain a covered position (spot and forward combined) in a foreign currency,
and can now take open positions.
House savings deposits soared in 1966
To stimulate savings for direct employment in residential construction,
legislation creating the house savings scheme known as epargne-logement was
passed in 1965. The scheme became operative in January 1966, and because of
its immediate popularity there was a notable increase last year in net
acquisitions of assets categorized as "short-term liquid savings."
Under the house savings scheme, a prospective buyer of a residence
can deposit funds with a commercial or savings bank and receive 2 per cent
tax-free interest on this deposit. After 18 months, and having reached a
certain minimum accrued interest balance on his account, he is entitled to a
mortgage on which he pays interest considerably below the current market
rates. At the same time, the saver also receives a tax-free premium from
the Treasury, equal to the interest accrued on his account. The first loans
under this scheme will be granted in July of this year.
The stock of liquid savings increased by 13.7 per cent in the
course of 1966, compared with 11.5 per cent in 1965. The acceleration appears
to have been due to the growth of house savings deposits; the other forms
rose 11.5 per cent in 1966, or at the same rate as the year before. In view
of the fact that the money supply grew less in 1966 (7.7 per cent) than in
1965 (9.4 per cent), the figures suggest strongly that the house savings
scheme was successful in attracting new saving, rather than merely causing
a shift from one form to another. (See Table 5.) However, as of the end
of April of this year, the house savings accounts were still a relatively
insignificant fraction (2.5 per cent) of the total short-term liquid savings
in France.
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Table 5.
End of Year
or Month
France: Short-Term Liquid Savings, 1965-67
(billions of francs)
Outstanding:
fipargne- Other
logement
Savings
Total
Savings
Per Cent Changes
Net of gpargneTotal
Logement
Savings
--
105.14
105.14
1965
--
117. 31
117.31
+11.5
+11.5
1966
2.58
130.81
133.39
+13. 7
+11.5
April 1966
1.06
122.65
123.71
+ 5. 6*/
1964
April 1967
3.42
136.58
140.00
--
--
7
+ 5.L*
+ 4. 7*1
+ 4. 6*/
*/ Changes in the first four montte of the year.
Source: Conseil National du Credit.
In the first four months of 1967, the rate of rise in the stock
of liquid short-term savings declined slightly, dropping to 5.1 per cent from
5.6 per cent a year earlier.
Gold coin prices rose further in 1966
Prices of coins in the Paris gold market underwent another
upsurge in the latter half of 1966. As shown in Table 6, the price of
the Napoleon 20-franc piece moved up 11.7 per cent from June to December.
In the first five months of this year, coin prices declined slightly, but
the outbreak of hostilities in the Middle East caused the price of the
Napoleon to jump 15.4 per cent between June 2 and June 6, to the highest
levels registered since 1949. The price fell back sharply on June 7,
probably becaus a of Bank of France selling in the market. Because of the
increase in the price of the Napoleon in the past year, the Napoleon is
currently selling at approximately a 50 per cent premium over the price of
bar gold. Other coins also sell at substantial premiums in Paris, though
they are smaller than for the Napoleon. The premium on the British gold
sovereign, for example, was 22 per cent in May.
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Table 6C
France:
Gold Prices on the Paris Market, June 1966-June 1967
(monthly averages, in francs)
Ingot
of 1
Kilogram
June
July
August
September
October
November
December
January
February
March
April
May
June 6
7
14
- 13 -
French
F20 Coin
"Napoleon"
5.,570
5.,570
5,,580
5.,600
5.,620
5.,620
5,, 640
5,,640
5 ,600
j
5i,610
5,,600
5,,580
n0 a.
5,580
5,570
44,.14
44,.69
45,,04
46..73
47.,59
48..54
49.,29
49., 17
48,,40
48.,55
48.,12
480 92
56. 90
49.00
49.40
Premium
°n
1/ British
Napoleonic Sovereign
34..8%
36.,5
37.,5
42.,7
45.,3
48.,2
50.,5
50.,1
47. 8
48. 2
46. 9
49.4
73. 7
49. 6
50. 8
48.27
48.45
49.59
49.33
49.61
49.66
50.06
50.30
49.63
49.45
49.58
49.78
n. a.
50.10
n. a.
Premium
2/
Sovereign-'
18. 7%
18.4
21.9
21.3
22.0
22.1
23.1
23.6
22.0
21.6
21.9
22.4
n. a.
23.2
n. a.
1/ The gold content of the Napoleon is worth F 32.75 with gold at
$35 per oz. and 1 franc = 20.255 cents.
2! The gold content of the sovereign is worth F 40.68 with gold at
$35 per oz, and 1 franc = 200.255 cents.
Sources; INSEE: Monthly Bulletin of Statistics, Bank of France and
La Vie Francaise.
Stock prices continue to decline
In spite of the earlier official efforts to help the Bourse
by tax relief measures, the index of stock price, having shown little
change in the second half of 1966, resumed its long decline in 1967.
Between January 1 and June 22, French stock prices declined by 11.2 per
cent, as measured by the INSEE index. This lack of confidence is connected
with the uncertainties facing the French economy and the fact that the 1966
profit performance by French corporations has not been outstanding. French
market analysts are quite pessimistic about the likelihood of an early
recovery of French stock prices.
OFFICIAL USE ONLY
OFFICIAL USE ONLY
- 14 -
Balance of payments shifts into deficit
After seven and one-half years of large surpluses, the
French balance of payments moved into deficit in the second half of
1966. Most of this turnaround was centered on the trade accounts, with
exports declining and imports continuing to rise at a slowly decelerating
rate. In the months July-December, the overall deficit was $205 million,
as measured by changes in the net foreign assets of the monetary authorities
and the commercial banks. In September 1966 there was a $71 prepayment of
long-term official debts, adjustment for which would reduce the deficit in
those six months to $134 million. These figures compare with the balance
of payments surplus of $318 million in the second half of 1965.
Balance of payments deficits continued in 1967, though on a
much smaller scale. The official reserves of gold and convertible currencies
showed a nominal rise of $3 million in the months January-May with the French
gold position remaining virtually unchanged from the September 1966 level.
But France's IMF position declined by $85 million, because of the British
repayment of $100 million equivalent of francs to the Fund in May. The
commercial banks' net foreign position also deteriorated by $58 million in
the first quarter and probably continued to deteriorate in the second quarter.
The spot rate for the French franc, having remained close to its
upper limit (20„410 U.S. cents) for over two years, started to decline in
September 1966 and continued to decline through the balance of the year,
reaching a low of 20.171 U.S. cents in mid-December.
This decline reflected
the adverse balance of payments developments. The rate recovered somewhat
in the first quarter of 1967 and remained relatively stable at about
20.205 U.S. cents. The rate for spot francs started to rise rapidly in
April, and at the end of June the franc was quoted at 20.405 XT,S, cents,
very close to its upper limit. The reasons for this recent substantial
appreciation are not yet clear.
Prepared by :
Jan W. Karcz and Rodney H. Mills, Jr., Economists
Europe and British Commonwealth Section
Division of International Finance
OFFICIAL USE ONLY
NEW Y O R K , L O N D O N , M O N T R E A L :
YIELDS FOR U.S. DOLLAR INVESTORS O N 3 - M O N T H FUNDS
DOLLAR
DEPOSIT
RATES: N E W Y O R K - L O N D O N
EURO-DOLLAR DEPOSIT
— U . S . C E R T I F I C A T E OF D E P O S I T
EURO-DOLLAR OVER
i
U . S . C E R T I F I C A T E OF D E P O S I T
j
j
[
/ \
!
i
A i
i
J
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FINANCE
:
CO.
i
PAPER
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i
i
RATES ( c o v e r e d ) :
i
r
QUOTED
I
IN N E W
Friday hgu r e$
I
/
I
|
;
Vj
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I . J,
1
1
YORK
T
U . K . HIRE PURCHASE
Mar.
Jun.
1965
Sept.
Dec.
Mar.
.un.
1966
Sept.
Dec.
Mar.
1967
Jun.
LONDON:
YIELDS
FOR U . S .
DOLLAR
INVESTORS O N
3-MONTH
FUNDS
E U R O - D O L L A R D E P O S I T RATES
Per C.n. per on,
30
DAY
A
) DAY
vk
A.
!
i
HIRE
PURCHASE
AND
LOCAL
AUTHORITY
DEPOSIT
RATES
HIRE PURCHASE
\
a
A
.
I
^
(covered)
f
1
A
/
EURO-DOLLAR
1
DEPOSIT
DIFFERENTIAL
!
!
I
EURO-DOLLAR
FAVOR E U R O - D O L L A R
DEPOSIT
LOCAL
DIFFERENTIAL
FAVOR HIRE P U R C H A S E
AUTHORITY
DEPOSIT
FAVOR LOCAL A U T H O R I T Y
FAVOR E U R O - D O L L A R
1965
1967
I
INTEREST A R B I T R A G E : F R A N K F U R T / L O N D O N , Z U R I C H / L O N D O N
FRANKFURT
INTERBANK
LOAN
RATE VS.
LONDON
EURO-DOLLAR
RATE ( C O V E R E D )
; INTERBANK LOAN RATE
; EURO-DOLLAR
2
DIFFERENTIAL
FAVOR F R A N K F U R T
FAVOR EURO-DOLLAR
ZURICH
DEPOSIT
RATE
VS.
LONDON
EURO
DOLLAR
RATE ( C O V E R E D )
EURO-DOLLAR
SWISS DEPOSIT RATE ;
DIFFERENTIAL
FAVOR Z U R I C H
FAVOR ^ U R O - D O L L A R
n
PRICE OF G O L D I N L O N D O N
INTEREST ARBITRAGE,
3-MONTH
UNITED
TREASURY
STATES/CANADA
BILL RATES
C A N . F I N . CO. P A P E R
CANADA
UNITED STATES
BILL
RATE D I F F E R E N T I A L
AND
FORWARD
CANADIAN
j
DOLLAR
PREMIUM
S P R E A D I N F A V O R OF C A N A D A
FORWARD RATE
3-MONTH
COVERED
RATE D I F F E R E N T I A L S
DISCOUNT
(NET I N C E N T I V E S ]
FAVOR CANADA
PRIME FINANCE PAPER
TREASURY BILLS
FAVOR U.S.
S
D
1964
1965
D
J
1966
S
0
M
S
1967
D
INTEREST
ARBITRAGE,
NEW
YORK/LONDON
3-MONTH TREASURY BILL RATES
U.K. LOCAL AUTHORITY DEPOSITS
LONDON
/V
NEW YORK
RATE
DIFFERENTIAL
AND
3-MONTH FORWARD
STERLING
S P R E A D IN F A V O R OF L O N D O N
DISCOUNT
FORWARD RATE
RATE
DIFFERENTIAL
WITH
FORWARD
EXCHANGE
COVER
(NET
INCENTIVE)
I N F A V O R OF L O N D O N
IN F A V O R OF N E W Y O R K
1964
1965
|
1966
1967
S H O R T - T E R M INTEREST RATES *
E U R O D O L L A R - LONDON t
U.K.
V
SWITZERLAND
JAPAN
GERMANY
CANADA
U.S.
1963
1964
1965
1966
1967
L O N G - T E R M B O N D YIELDS
NETHERLANDS
CANADA
r
1
GERMANY
/ k
\v\
v
^
1963
\
XX
1964
r - ^ - "
1965
r^:r
EURO-DOLLAR BONDS*
1966
1967
SPOT E X C H A N G E RATES - M A J O R
C U R R E N C I E S A G A I N S T U . S . DOLLAR
SWISS FRANC
GERMAN MARK
U.K. STERLING
FRENCH FRANC
B E L G I A N FRANC,
DUTCH GUILDER
CANADIAN DOLLAR
I T A L I A N LIRA
JAPANESE YEN
M
J
1965
S
D
M
J
1966
S
D
M
1967
»
%
3 - M O N T H F O R W A R D E X C H A N G E RATES
A G A I N S T U.S. D O L L A R S — N E W YORK
SWISS FRANC
r
A
-4
a , '
<\J\
4
GERMAN MARK
POUND STERLING
/
DUTCH G U I L D E R
\ FRENCH FRANC
/
CANADIAN DOLLAR
A G A I N S T P O U N D STERLING — L O N D O N
PREMIUM
S W I S S FRANC
GERMAN MARK
U . S . DOLLAR
DISCOUNT-
1965
1966
1967
SWITZERLAND
200
CANADA
160
J 120
1966
H. 13
No. 307
July 12, 1967.
(all figures per cent per annum)
Upper Panel
Chart 1
(Wednesday,
)
July 5
Euro-$ deposit
5.38
U.S. certif. of deposit
4.98
Lower Panel
(Friday,
)
July 7
Finance co. paper:
U.S.
Canada
Hire-purchase paper, U.K.
4.50
5.10
5.52
5.06
5.44
90-day
180-day
Hire-purchase paper
5.44
5.88
5.88
(June 30)
Local-authority deposit
CJune 30)
Chart 3
Upper Panel (Period:
June 30
5. 50
Interbank loan (mid-point)
4 . 06
Euro-$ deposit (average)
5.38
(Date:
June 15
Price of gold
(Friday,
June 30
)
)
4..25
Zurich 3-month deposit
)
35.,186
Chart 4
(Friday, July 7 )
Treasury bills:
Canada
U.S.
Spread favor Canada
Forward Canadian $
Net incentive (Canada +)
Canadian finance paper
5.18
~7l9'
U.K.
U.S.
+ .99 _
Spread favor U.K.
Forward pound
- .29
Net incentive (U.K. +)
+ .70
Treasury bills:
Euro-$ deposits:
Lower Panel
Treasury bills:
Chart 6
(Friday, July 7 )
Chart 2
(Friday, July 7 )
Call
30-day
Chart 5
(Friday, July 7 )
4. 17
4. 19
02
21
23
5. 38
4.19
5.18
4.17
U.S.
U.K.
Canada
_4/06_
Interbank loan rate (German)
(June 30)
Euro-$ deposit (London)
Zurich 3-month deposit
(Date:
June 15
Japan composite rate
(Date: May 26
5.44
)
4.25
)
7.30
Chart 7
)
4.90
U.K. War Loan (Thurs., July 6 )
7.00
U.S. Gov't. (Wed.,
July 5
German Fed. (Fr x. , June 30
)
6.84
Swiss Confed. (Fri. , June 30 )
4. 70
Canadian Gov't. (Wed., July 5 )
5.89
Netherlands Gov't, perpetual 37»
(Friday,
June 30
)
5.66
Euro-$ bonds (Fri. , July 7
6.33
)
For descriptions and sources of data, see
special supplement to H.13, Number 239,
March 16, 1966.
@FedFRASER