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Bank of France savours times past at 200

PARIS: Born from the ashes of revolution, the Bank of France celebrates its 200th birthday on Tuesday with a toast to its founder Napoleon and a touch of nostalgia for an era being swept away by Europe's single currency.

The bank, whose power to print money and set interest rates once had governments quavering, survived two centuries of war and upheaval to become the trusted guardian of the French franc.

But it will lose its original job of printing francs in 2002 when euro banknotes take over and it ceded its right to set interest rates to the Frankfurt-based European Central Bank when the euro was launched in 1999.

Created by Napoleon on January 18, 1800, the Bank of France is one of Europe's oldest central banks after those of England and Sweden.

It could have been even older but for the excessive ambition of a banker of Scottish origin, John Law, who was granted rights to print banknotes in France nearly a century earlier.

The initial success of Law's adventure in 1716 went to his head and he furiously printed bank bills to fund an expanding land and mining empire, only to find he could no longer honour the bills he issued when his empire collapsed.

Law fled the country amid riots and it took another failed attempt by the Revolutionary Government in 1789 before the lesson sank home.

Napoleon, who hoped to pull France out of post-revolutionary recession, started up the bank as a joint stock firm.

He made it independent of government interference so that it would be solid enough to rebuild public trust in paper money, while printing banknotes to oil the wheels of trade and commerce and get the country moving again.

At the outset its banknote activity was limited to Paris and it took decades before to win wider, exclusive rights to print money which other governments had to accept as legal tender.

One of the fundamental tasks of modern central banks was bestowed on the Bank of France only in 1927 - authorisation to intervene in foreign exchange markets to stabilise the currency.

Nationalisation followed World War Two, and then a series of devaluations which once again left French people wondering about the value of their French franc banknotes.

Then in the early 1980s, the Napoleonic view of a solid currency to give France economic clout came back into fashion under the late president Francois Mitterrand, who vowed to marry the franc to the powerful German mark in a single European currency.

That meant jacking up interest rates to keep the franc on a par with the mark, sometimes putting the bank in the firing line of governments aghast at the fallout on economic growth and rising unemployment among their electorate.

Its governors earned the nickname of the Ayatollahs of the strong franc for their commitment to defending the currency, raising interest rates even in the face of recession.

But at least for Bank of France chief Jean-Claude Trichet, the policy was vindicated, with a move first to fully-fledged independence 1993, the creation of the European Central Bank in Frankfurt in 1998, and the euro's launch in January 1999.

EUROPE FORCES REALITY CHECK?

It is the launch of the euro itself that is forcing the bank to fend off criticism that it no longer needs its 16,000 staff, from cheque cashiers to currency traders, nor its nine-member Monetary Policy Council of highly paid monetary gurus.

The sumptuous headquarters bought from the Count of Toulouse in Paris in 1808, with its Fragonard paintings and gilded halls, only serve to highlight its roots in the past.

Business magazine Capital recently accused the central bank of living the high life at a huge cost for an institution which "no longer plays the role of a central bank".

Trichet is struggling to halve the cost of the notes printed by the Bank of France and shake the habits of an old monopoly on French francs which ends when the euro takes over.

But he argues the bank still has a lot of work on its hands.

Besides the role which it has retained as supervisor of the commercial banking sector, it still plays a key role inside the European System of Central Banks.

Under this system, the national banks, rather than the ECB, hold and manage most euro zone money whether for intervening on foreign exchange markets or holding commercial bank accounts.

Its research staff now have to analyse the economy of the whole 11-country euro zone - not just France - in preparing reports for Trichet when he goes to the ECB to put in his vote on interest rate levels and the cost of credit.

BIRTHDAY BRINGS BUSINESS TO PARIS

Whatever the arguments over the golden era, Trichet is bent on celebrating his bank's bicentenary and making Paris a hotbed of central banking business in 2000.

He has invited the central bank chiefs of all the world's big economies to Paris for a monetary conference in May.

The European Central Bank's governing council will head to Paris for a policy meeting in September and an informal gathering of central bankers from Francophone countries worldwide is planned the same month.

A host of private sector events including annual meetings of ISMA securities traders and international currency traders is programmed for Paris in May and June.

The central bank also plans a string of festive, cultural or sporting events for staff on January 18.

According to staff sources, Trichet has even decided to make a special 2,000 franc ($310) payout to each member of staff to commemorate the event.-Reuters