Wielding Finance as a Weapon of Diplomacy: France and Britain in the 1920s

Abstract

France had long conceived of finance as an instrument of diplomacy. The role of French finance in the sealing of the Franco-Russian Alliance in 1892 is well known; the Quai d'Orsay's use of access to the French financial markets and the Bourse as an arm of foreign policy before the War was the subject of much research in the early 1970s. However, the use of currency speculation as a diplomatic instrument has received little attention. Of course, under a regime of fixed rate parities as existed before the Great War—the Gold Exchange Standard—currency fluctuation was uncommon; it was extremely difficult to attack currencies in a concerted manner on the international money markets for any reason, let alone for diplomatic advantage. But following the outbreak of the Great War, many currencies came off the gold standard, and a state of financial turmoil prevailed in the post-war period. The French franc was not alone in being buffeted on the international market. Currency vulnerability and the ramifications it had for national economic policies became all too obvious. Friends and foe alike could not ignore how short-term concerted action by banks and financial institutions on a currency by heavy selling or buying could undermine governments and their policies. It was not long before governments would view currency speculation as a means of influencing policy. The question of stabilising the French franc in the 1920s and returning it to a fixed parity against gold has been studied from economic and political dimensions; the diplomatic has been the missing dimension. This article looks at the stabilisation of the French currency in 1926 under Raymond Poincaré and the manner in which finance was wielded as an instrument of diplomacy against Britain. It first analyses how France perceived herself to be the object of currency manipulation for political aims by Germany and Britain in the early 1920s, and then it analyses how during the stabilisation of the franc after 1926 under Premier and Finance Minister Raymond Poincaré she was able to turn the tables and use short-term financial advantage as leverage against Britain on important policy matters.