Investing Resource Center - www.investitor.net  

The Franc

 

  Home
  Investing basics
  Resources
 
 

 
 
  Home > Glossary > Franc
 
The franc is the name of several currency units. The name is said to derive from the Latin inscription francorum rex ("King of the Franks") on early French coins, or from the French franc, meaning "free".

Countries which use francs include Switzerland and most of the Francophone countries of Africa. Before the introduction of the Euro, francs were also used in France, Belgium and Luxembourg, while Andorra and Monaco accepted the French franc as legal tender. One franc is typically divided into 100 centimes.

The franc was originally a French gold coin of 3.87g minted in 1360 on the occasion of the release of king John II ("the good"), held by the English since his capture at the Battle of Poitiers four years earlier. It was equivalent to one livre [pound] tournois of 20 sous, a standard money of account.

Though abolished as a legal currency by Louis XIII in 1641 in favour of the gold louis or ecu, the term franc (along with livre) continued to be used in common parlance.

The franc was re-established as the national currency by the French revolutionary Convention in 1795 as a decimal unit of 4.5g of fine silver (theoretically slightly less than the livre of 4.505g, though the new coin was set in 1796 at 1.0125 livres, reflecting in part the past minting of sub-standard coin).

With the creation of a gold franc in 1803, gold and silver-based units circulated interchangeably on the basis of a 1:15.1 ratio between the values of the two metals (bimetallism).

The conquest of most of western Europe by Revolutionary and Napoleonic France led to the franc's wide circulation. Following independence from the kingdom of the Netherlands, the new kingdom of Belgium in 1832 adopted its own franc, equivalent to the French one, followed by Luxembourg in 1848 and Switzerland in 1850. Newly-unified Italy adopted the lira on a similar basis in 1862.

In 1865 France, Belgium, Switzerland and Italy created the Latin Monetary Union (to be joined by Greece in 1868): each would possess a national currency unit (franc, lira, drachma) worth 4.5g of silver or .290322g of gold (fine), all freely exchangable at a rate of 1:1. In the 1870s the gold value was made the fixed standard, a situation which was to continue until 1914.

World War I severely undermined the French franc's strength, as war expenditure, inflation and postwar reconstruction financed partly through the printing of ever more money reduced the franc's puchasing power by 70% in 1915-1920 and a further 43% in 1922-1926. After a brief return to the gold standard (1928-1936) the currency was allowed to resume its slide, until it was worth in 1959 less than a fortieth of its 1936 value.

In January 1960 the franc was revalued at 100 existing francs. Old franc pieces continued to circulate as centimes (none of which were minted for the first two years), 100 of them making a nouveau franc (the abbreviation NF was used for some time). Inflation continued to erode the currency's value but at a greatly reduced rate comparable to other countries, so that at its abolition in February 2002 the new franc was worth less than an eighth of its original value.

Many people continued using old francs, anciens francs as a unit; large sums such as lottery prizes were often given in centimes, since these are equivalent to the old franc. This usage continued right up to its abolition in 2002, with speculation as to whether older people would carry the factor of 100 conversion through to the Euro, the scaled-down version being called, naturally, the Euro ancien.

Belgium experienced similar depreciation and an abrupt collapse of confidence in 1926, leading to the introduction of a new gold currency for international transactions, the Belga of 5 francs, and the country's withdrawal from the monetary union, which ceased to exist at the end of the year. The 1921 monetary union of Belgium and Luxembourg survived, however, forming the basis for full economic union in 1932.

From January 1, 1999, the French franc was set at .152449 euro, the currency which replaced it entirely between January 1 and February 17, 2002. The Belgian franc, similarly fixed at .024789 euro, ceased to exist on February 28. 2002. The Swiss franc, which appreciated significantly against the new European currency in April-September 2000, remains one of the world's strongest currencies, worth today around two-thirds of a Euro.

Fourteen African countries use the franc CFA (in west Africa, Communauté financière africaine; in equatorial Africa, Coopération financière en Afrique centrale), originally (1945) of 1.7 French francs and then from 1948, 2 francs (from 1960: .02 new franc) but after January 1994 worth only .01 French franc. Therefore, from January 1999, 1 CFA franc is equivalent to .00152449 euro.

A separate (franc CFP) circulates in France's Pacific territories, worth . 0084 euro (formerly .055 French franc).

Google

© 2004 investitor.net