Word: france
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...turbulence began with a modest run on the wobbly franc after Charles de Gaulle resigned and speculators became convinced that France would order a long-anticipated devaluation (TIME, May 9). Then, last week, the attack on the franc turned into a far more disruptive rush to buy West German marks. Convinced that economically potent Germany must soon raise the official value of its robust currency, speculators and more conservative businessmen all over the world swapped their money for marks in the expectation of a quick profit. A speculator who converted $2,500,000 into marks, for example, stood...
That is unlikely. In comparison with most other major currencies, the mark remains undervalued by about 8% to 10%; the disparity between it and the French franc may be as much as 15% or 20%. Speculation in marks may subside for a while, as happened after the Germans refused to revalue last November. But as before, it will probably resume after a few months. Until the mark moves up and the franc moves down, closer to their real value, financial markets will remain unsettled...
After De Gaulle's departure, speculators rushed to buy marks, knocking the franc, the dollar and the pound to the lower limits set by the International Monetary Fund. The prospects of another franc devaluation-the eighth since World War II-caused French bank notes to sell at a 10% discount abroad, and the price of gold in Paris reached record highs. French reserves fell for the twelfth consecutive week, while German Bundesbank reserves jumped by $400 million. Only the strict French currency controls prevented a much sharper shift out of francs and into marks...
TIME'S European Economic Correspondent Robert Ball reports: "Perhaps France could limp through this year without devaluation, just as the mark might squeeze through without a parity change (though this is less likely). But one is bound to ask why. A clean break fairly soon would be better for France and for the world monetary system than living with a sick franc for months...
...Germans are talking about revaluing by 8% to 10% if the franc is dropped by the same amount. Any major increase in value of European money would tend to help the U.S. balance of trade-which posted a $215 million surplus in March-by increasing the price of imports. Without revaluation, it will be a long, uneasy summer in the foreign exchange markets...