Public debt as private liquidity: the Poincaré experience (1926–1929)

Aurélien Espic
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Aurélien Espic: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, AMU - Aix Marseille Université

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Abstract: In the follow-up to the 1926 political and monetary crisis in France, a new government led by Raymond Poincaré attempted to restore monetary stability by restructuring public debt. A sinking fund was missioned to withdraw short-term public bills from money markets. This policy disorganized the largest Parisian banks of the time, as they relied on these bills to manage their liquidity. Without developed domestic money markets, no other asset could absorb the excess liquidity freed by the withdrawal of these bills, and these leading banks faced a low-rate environment. In search of yield, they expanded their activities abroad a few months before the 1929 crash. These findings renew our understanding of the expansion of France's banking sector in the 1920s. In addition, they shed new light on the role of public debt in financial stability in an open economy.

Keywords: Public debt; Liquidity; International finance; Interwar (search for similar items in EconPapers)
Date: 2024-01-22
Note: View the original document on HAL open archive server: https://hal.science/hal-04590073
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Published in Financial History Review, 2024, 30 (3), pp.308-329. ⟨10.1017/S0968565023000100⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04590073

DOI: 10.1017/S0968565023000100

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