Caisse d'escompte

Background

The searing boom-and-bust experience with Law's system in 1719–1720 delayed consideration of re-establishing a central bank in France, despite challenges with the existing system of commodity money and credit provided by individual bankers. Proposals to create a new national bank of issue were made by various scholars and analysts. Thus for example François Véron Duverger de Forbonnais, in a 1755 essay titled Mémoires pour l'établissement d'un crédit public, recommended the creation of an institution modeled on the Bank of England that would monetize France's government debt and facilitate state financing.

In April 1767, a new bank was established under the direction of Jean Joseph de Laborde, banker to the king, to address the financial stress at the French Indies Company. This entity was called Caisse d'Escompte. The bank employed two cashiers, Dollé and Bertrand Dufresne. One of the bank's major private shareholders were the Magon family, who then took over the building of the Caisse's head office, the Hôtel de Ségur. This bank turned out to be short-lived given the Indies Company's continued difficulties, and was eventually wound up in 1769 together with the Indies Company itself.

Creation and early development

The Caisse d'Escompte was approved by royal edict of 24 March 1776 under the authority of Controller-General of Finances Anne Robert Jacques Turgot. The new bank was tasked with discounting bills of exchange and other commercial instruments in order to lower the interest rate on commercial credit and to facilitate trade. It also bought existing government debt in the market and lent back to the French state at the capped rate of 4 percent. The bank was initially capitalized at 15 million livres, divided into 5,000 shares of 3,000 livres each. The new venture was confirmed by a second royal edict of 22 September 1776. It had its seat on rue Vivienne, next to the Paris Bourse and to where John Law's Bank was located during its last year of activity.

Panchaud was in charge of management at the bank's start. He encountered great difficulty in raising the capital, which was reduced to 12 million in the course of 1776. The dividend was set at 1 percent, below market expectations, so that a collective effort by existing Parisian private bankers was needed to close the subscription. That painful process was only completed in early 1779 and ratified by royal edict of 7 March 1779, under the authority of Jacques Necker, by then the Controller-General.

The Caisse d'Escompte issued its first banknotes in January 1777. In April 1778, eight new Directors were elected, namely the bankers Jacques-Jean Le Couteulx du Molay, Louis Tourton, Théodore Rilliet, Pierre Cottin, Jean Girardot de Marigny, Jean-Baptiste Vandenyver, Jean-Pierre Louis Pache de Montguyon, and Jean-Louis Julien. From 1781 to 1783 (as again in 1791) the lead director was Parisian banker Étienne Delessert. During the American Revolutionary War, the Caisse d'Escompte started buying government debt securities, not least on the international market.