#879 - Fighting back against shorts
“9.6 million francs worth of gold exchange requests in 5 days?” Joseph frowned slightly, looking at Laffitte. “Please explain in detail.”
“Yes, Your Highness.” The manager of the Bank of France bowed. “These clients have varying identities, but they all refuse alternative exchange methods. The amount is at least 300,000 francs or more.
“In the past few days, exchanges were mainly concentrated in the Paris branch of the Bank of France. Since yesterday, banks in Reims and Orléans have also successively received exchange requests.”
Brienne added from the side: “There are also a lot of rumors in the financial market, saying that ‘the gold reserves of the Bank of France are exhausted,’ or ‘the government will soon terminate the business of exchanging banknotes for gold.’
“Currently, the news has not spread widely among the people, but there are still citizens lining up at banks to exchange for gold.”
Joseph then asked Brienne: “What is the current ‘non-convertible amount’ of the franc?”
The “non-convertible amount” is a financial term, meaning the portion of banknotes issued by the country that exceeds its gold reserves.
Brienne immediately said: “58 million francs, Your Highness.”
Judging from the current market size and economic situation in France, the amount of over-issuance is completely within a safe range.
Joseph pondered and nodded: “It seems that someone is maliciously shorting the franc. Mr. Laffitte, what is the gold inventory of the Paris branch of the Bank of France?”
“There are still 740,000 ounces, Your Highness.”
After Laffitte finished speaking, seeing the Crown Prince frowning, he quickly added: “Approximately equivalent to 70 million francs.”
Joseph couldn't help but show a solemn expression.
At the current exchange rate, the gold reserves will be emptied within a month.
Moreover, this kind of thing can never develop linearly. The less gold in the bank's inventory, the more serious the run on the bank will be.
In addition, with someone maliciously spreading rumors, I am afraid that it will not be long before more than 10 million francs worth of gold will be exchanged in one day.
Once the bank's gold reserves are exhausted, it will immediately trigger a currency crisis and an economic crisis.
Brienne and Laffitte exchanged glances and suggested: “Your Highness, in order to ensure the financial stability of Paris, should we transfer some gold from other places?”
Joseph immediately shook his head.
Paris has reserves of 70 million francs worth of gold. Under normal trade activities, the slow flow of banknotes and gold is definitely sufficient.
If a large amount of gold is transferred to deal with malicious shorting, it will inevitably seriously affect various places, especially the foreign trade of border provinces—doing business with Ottoman, Russia and other countries still requires relying on gold.
Brienne changed his method again: “Then expand the scope of the ‘remote transfer clause’, for example, reduce the activation amount to 100 francs.
“Or raise the large-amount exchange fee to 2%…”
Exchanging banknotes for large amounts of gold requires paying a handling fee to the bank. Currently, a fee of 0.8% is charged for amounts over 5,000 francs. In an era of inefficient banks, all countries operated in this way.
Joseph resolutely said: “No, this will only increase market panic.”
What is most important in financial games?
Confidence!
What's the panic?
The fundamentals of the French economy are not a big problem. In this case, I have many cards to play.
Those countries that experienced economic crises in later generations were able to persist for several years by shifting and maneuvering.
Even if the situation in France really gets serious, I can just copy a few tricks to cover the bottom, and then slowly recover blood by relying on fiscal revenue and war dividends.
He immediately looked at Brienne and said: “Confidence. First of all, give the market full confidence.”
“You mean?”
“Reverse the measures you just mentioned.” Joseph smiled and said, “Reduce the usage rate of the ‘remote transfer clause’. Even if it is activated, try to deliver the gold within 15 days.
“The large-amount exchange fee will be reduced to 0.7%, and spread the word that the Bank of France has improved its operations and improved its operating efficiency, and it may reduce the fee to 0.5% in the future.”
Brienne and Laffitte both stared wide-eyed in shock.
If this is done, the gold reserves that could have lasted for a month may be gone in 20 days.
Joseph completely ignored the expressions of the two and continued to “attack” their nerves:
“Moreover, this kind of large-scale shorting behavior is definitely not enough with just the ‘ammunition’ in the hands of the initiator. Therefore, there will definitely be many short positions in the market.
“We will still operate in the opposite direction, throwing out a large number of transactions to go long on the franc and short gold!”
The newest and most complete novels are first published!
The shorting banker wants to break through the Bank of France's gold reserves of more than 70 million francs, and must prepare at least 60 million francs in banknotes as "ammunition."
Such a large amount of funds would be very difficult for even a national-level banker, let alone private capital.
Therefore, they usually only prepare part of the ammunition, such as 30 million francs, and then use this money to incite the market to follow suit.
Once the trend is formed, private speculative capital will follow up.
The banker's 30 million will have several times the effect.
And the easiest way for those speculative capitals to profit is to borrow a large amount of francs in banknotes, then exchange them for gold, wait for the franc to collapse and begin to depreciate, and then exchange the gold back for francs to repay the debt.
For example, someone now borrows 1 million francs in banknotes and buys 300 kilograms of gold to hoard.
After the banknotes depreciate, 300 kilograms of gold can be exchanged for 5 million francs.
He took out 1 million to pay off the debt, and at most paid tens of thousands in interest, earning nearly 4 million for nothing!
Of course, the premise for all of this to be established is that the franc will collapse.
If it does not collapse, then the interest that the shorts have to pay will be deadly—don't underestimate the interest of tens of thousands, which is a huge sum of money when you have not earned it!
So how do you prevent speculative capital from following suit?
Very simple, just let them not see the possibility of the franc collapsing.
Many classic "long-short war" cases in later generations started with forced long positions in the opposite direction. Compared with them, the financial war in the eighteenth century was still as "pure" as a baby.
Once the long trend is formed, the shorts will soon lose miserably.
Brienne said nervously: “Your Highness, if the situation does not improve, this will put the country's finances in crisis…”
Joseph raised his hand to interrupt him: “Please trust me, in at most half a month, the people exchanging gold will disappear.
“Moreover, I still have a powerful bottom-line method available.”
After Joseph and the two chief financial officers discussed the plan to go long on the franc in detail, he thought of another thing:
“Then, next we have to find out who is the mastermind behind this malicious exchange incident.
“Eman, please ask Mr. Fouché to see me.”
