HOW LONG CAN THE FRANC HOLD ON?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83T00966R000100070008-6
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 2
• Document Creation Date: December 19, 2016
• Document Release Date: February 20, 2007
• Sequence Number: 8
• Publication Date: September 27, 1982
• Content Type: OPEN SOURCE

Approved For Release 20
t~---~
DATE 27 Sep 82
~AtiSMi7'f'AL SLIP ,
O:
)OM NO. BUILDIPJG
4E838 Pentagon
[MARKS'
HerE~'s more on prospects for
the franc and the Kissinger article
I told ~rou about.
RoM: Hal?ry Rowen, Chairman/NIC
~0 7E62 ~ BuILDIHgs./CIA
s ssD' 241
REPLACES FORM 3t~8 (47)
WHICH MAY BE USED.
/02120 :CIA-RDP83T00966R000100070008-6
 ,
~
II~ITEFINATIONAL MONEY MANAGEMENT
Ho~~nr long can the franc hold on?
The ~ya.ve of speculation that sent the
French franc to a record low of 7.13 to
the dollar on Sept. 13 and forced the
French government to seek $4 billion in
international standby credit just two
days lacer could rout the European Mon-
etary System. Only three months after
its last realignment, the EMS is again
under intense pressure. Small and medi-
um-size companies are pulling out of
francs as quickly as possible. European
officials say a suitcase flight from the
currency by French citizens has reached
the sarne pelt-mell tempo as before the
franc 'was devalued 10% against the
Deutschemark on June 13.
$ut unlike three months ago, many
seasoned money market professionals
are parked on the sidelines this time.
Treasurers of some of the largest U. S.
multinationals also are refusing to join
the run.
Squeezing the speculators. "The profes-
sionals see this as a dangerous market
and not one in which to be too much
against, the franc," warns Friedrich W.
Menzel, managing director for Citicorp
in Frar.~kfurt. Although France's double-
digit inflation rate and accelerating bal-
an~e-of-payments deficit make the franc
a prime candidate for devaluation
against. the D-mark and Dutch guilder
before yearend, the major players be-
lieve P;iris is locked in a stubborn battle
of political prestige with speculators and
would be willing to exhaust its foreign
..currency reserves before throwing in
the towel. "By deferring any adjust-
ment, France makes it expensive to
near-team speculators," says the foreign
exchange manager of a major U. S. mul-
tinational. "If speculators against the
franc are forced to hold their positions
for several months, then they pay dearly
for their gamble in terms of high inter-
PERCENT
FOREIGN U
NITS PEiil U.
S. DOLLAR
(top)/ U. S. D
OLLARS (bo
ttom)
U. S.
CERTIFlCATES OF DEPOSR
EUROMARKET
-
~
.
TREASUR
TIME
GERfIAN
SWISS
JAPANESE
CANADUIN
FRENCH
BRRISN
RALLAN
BILLS
U.S. EUROMARKET SINGAPOR
DEPOSRS'
MARK 1
FRANC
YEN
DOLLAR
FRANC
POUND
LIRA
2.51 ~ 2.15
263
123
710
.5858
14
14
X
X
X
X
X
:3980 ~'~:
bE33797"
~~
~'~8sf0
409
t707dr~
.
;. '~Q'}~-
.2.49 ~ 2.11
260
1.24
722.
5839
1444
THREE-IrIONTH
7.87
11.00
11.50
11.65
12.13
-~~-
`4024 ; .474~'rv'
"?:0038,4
~,~ 7
1386
17127.
t)0'0693?:,
2.46 ~ 2.07
257
124
7.33
5800
1475
SIXaiAONTH
9:52
11.90
12.35
12.50
13.06
:a07t~ :481;"
:0()3898-
;:,8055
. , =~36~~ ~
i.Z242~
~ (10067$";
2.40 ~ 1~9
250
125
7.53
.5734
1527
ONErYEAA
10.02
12.50
12.85
13.00
13.50
~ ',4167' {~'~:5019~~
_ ~ .
,~~.8003`~
~ X329}},
~~4.40,_
~t)00655
BANK PRIME
13.50?/
X
X
X
X
1200?,a 7.50%
5.75%
15.50%
13.25?/
10.50?/
20.75%
Approved For Release 2007/02120 :CIA-RDP83T00966R000100070008-6
? _~.._._
est rates on French money instruments
and other investments."
If that view proves correct, European
money markets could remain tumultu-
ous as a threatened, but unfulfilled,
devaluation hangs over the French, Dan-
ish, Belgian, Irish, and Italian cur-
rencies. Denmark's new right~f-center
government under Prime 3iinister Pou]
Schluter faces such deep economic trou-
ble that the Danes could tr'gger a third
wholesale realignment of European cur-
rencies in little more than a year, no
matter how hard the French try to
thwart it. "Denmark will act as the deto-
nator," warns a senior Italian monetary
official.
The Danes, meanwhile, have been
waiting for Sweden's national election
on Sept. 18 to see whether a new gov-
ernment-the country is not a member
of the EMS-will devalue the krona.
Many analysts believe Stockholm will do
so to regain export competitiveness with
Norway, which devalued its currency 6%
this summer. If the Swedes move, the
Danes are likely to act, predicts Poul
Mathiesen, director of foreign operations
for Copenhagen Handelsbank.
Hoping for time. West German Chancellor
Helmut Schmidt's shaky coalition gov-
ernment also will pose a critical threat to
the EMS, following state elections in Hes-
se on Sept. 26. If the right-of-center
Christian Democratic Union wins, that
could strengthen the D-mark at a time
when the Danish krone and French
franc are weakening, forcing a devalua-.
tion of the two currencies.
French officials are hoping to buy
time for their currency bs committing
the country to an austerity program of
wage and price controls through 1983.
But foreign exchange markets are skep-
tical that prolonged controls, which
Foreign exchange trader
would spe I a fall m French living stan-
dards, will be maintained. For that rea-
son, they expect the government of
President Francois Mitterrand to accept
a devaluation of at least 5% to 6%. "I
would not be surprised if the French
government swallowed its pride and ac-
cepted arealignment before yearend,"
says David Kern, manager of economic
analysis for National Westminster Bank
in London. "But they do not want to act
under pressure."
Weekly pattern. Many U. S. corporations
that bet against the franc in June are
thus refusing to gamble either for or
against the currency, anti French-based
companies are nervously selling francs
on Thursdays and buying them back on
Mondays to protect themselves against a
Even if French pride resists
devaluation, Denmark could
~force~a European realignment
possible weekend devaluation. "Each
weekend the franc comes under pres-
sure-in athin market," says a U. S.
corporate treasurer. "Each week the
process repeats itself; a devaluation can
become aself-fulfilling prophecy." Near-
ly all companies doing business in
France .are delaying converting foreign.
currency earnings into francs while
speeding up payments to suppliers out
side the country. .
Despite France's big international
loan, treasurers will continue to watch
closely the level of Paris' foreign ex-
change reserves. Without the $4 billion,
the Banque de France's reserves would
have lasted only another two months at
its current rate of spending to defend
the franc. France could still borrow from
the European Community and raise in-
terest rates to support its currency, but
the economic cost would be high. While
no country can hold out indefinitely
against massive speculation, France's
latest moves make the gamble against
the franc that much riskier,. notes Men-
zel of Citicorp. ~