I'm the Dauphin in France

Chapter 875: Counterattack against Short Sellers
"An additional 5 million francs of gold exchange applications were received within five days?" Joseph frowned slightly and looked at Lafitte. "Please tell me in detail."

"Yes, Your Highness." The manager of the French Reserve Bank bowed and said, "These customers have different identities, but they all refuse alternative means of exchange. The amount is at least 30 francs.

"In the past few days, the exchange was mainly concentrated in the French Reserve Bank in Paris. Since yesterday, banks in Reims and Orleans have also received exchange applications."

Brian added: "There are also a lot of rumors in the financial markets, saying that 'the French central bank's gold reserves are running out' or 'the government will soon stop exchanging paper money for gold'.

"The news hasn't spread widely among the public yet, but there are still people queuing up at banks to exchange gold."

Joseph asked Brian again: "What is the current 'non-convertible amount' of the franc?"

"Non-convertible limit" is a financial term, which means the portion of paper money issued by a country that exceeds its gold reserves.

Brian immediately said: "Fifty-eight million francs, Your Highness."

Considering France’s current market size and economic situation, the over-issued amount is well within the safe range.

Joseph nodded thoughtfully: "It seems that someone is maliciously shorting the franc. Mr. Lafitte, how much gold is in stock at the French Reserve Bank in Paris?"

"Another 74 ounces, Your Highness."

After Lafitte finished speaking, he saw that the Dauphin was frowning, and added: "It is about 7 million francs."

Joseph couldn't help but look solemn.

At the current exchange rate, the gold reserves will be redeemed within a month.

Moreover, this kind of thing can never develop linearly. The less gold the bank has in stock, the more serious the bank run will be.

Coupled with the malicious spread of rumors by some people, it would not be long before tens of millions of francs of gold would be exchanged in a single day.

Once the bank's gold reserves are exhausted, it will immediately trigger a currency crisis and an economic crisis.

Brian and Lafitte looked at each other and suggested, "Your Highness, in order to ensure the financial stability of Paris, do we need to transfer some gold from other places?"

Joseph immediately shook his head.

Paris has a reserve of 7 million francs worth of gold, which is certainly enough under normal trade activities, with the slow flow of paper money and gold.

If a large amount of gold is withdrawn in order to deal with malicious short selling, it will inevitably have a serious impact on foreign trade in various places, especially border provinces - doing business with the Ottoman Empire, Russia and other countries still relies on gold.

Brian came up with another idea: "Then expand the scope of the 'long-distance transfer clause', for example, reduce the activation amount to 100 francs.

"Or raise the large-amount exchange fee to 2%..."

If you exchange paper money for large amounts of gold, you have to pay a bank fee. Currently, if you exchange more than 5 francs, you have to pay a 0.8% fee. In the era of inefficient banks, all countries operate in this way.

Joseph said flatly: "No, this will only increase market panic."

What is the most important thing in financial games?

confidence!

As long as the market has confidence, even if it is a broken stone, there will be a steady stream of funds pouring in.

On the contrary, once market confidence collapses, no matter how healthy your financial system is, it will be crushed by a bank run.

Brian said anxiously: "Your Highness, according to the current trend, if no measures are taken, there will definitely be a big mess..."

Joseph tapped the armrest of the chair with his fingers, quickly recalled various cases of financial sniping in later generations, and then his brows suddenly relaxed.

What are you panicking about?
There is no major problem with the fundamentals of the French economy, so the country has many cards to play.

In later generations, countries that experienced economic crises were able to survive for several years by maneuvering. Even if the situation in France really became serious, they could just copy a few tricks to get through it, and then slowly recover by relying on fiscal revenue and war dividends.

He immediately looked at Brian and said, "Confidence. First of all, we must give the market enough confidence."

"You mean?"

"Reverse the measures you just mentioned." Joseph smiled and said, "Reduce the use of the 'long-distance transportation clause'. Even if it is used, try to deliver the gold within 15 days.

"The large-value exchange fee has been reduced to 0.7%, and the rumor has been leaked, which means that the Reserve Bank has improved its business and increased its operational efficiency, and it is possible that the fee will be reduced to 0.5% in the future."

Brian and Lafitte both widened their eyes in shock.

If this happens, the gold reserves that could have lasted for a month might be gone in 20 days.

Joseph completely ignored the expressions of the two men and continued to "strike" their nerves:

"Moreover, this kind of large-scale short selling behavior is definitely not enough with just the 'ammunition' in the hands of the initiator. So there will definitely be a lot of short selling in the market.

“We are still doing the opposite, selling a lot of long franc trades and shorting gold!”

If the short-selling dealer wants to break through the French Reserve Bank’s gold reserves of more than 7 million francs, he must prepare at least 6 million francs of banknotes as “ammunition”.

With such a huge amount of funds, not to mention private capital, even a national-level banker would find it very difficult to manage.

So they usually only prepare part of the ammunition, such as 3 million francs, and then use the money to incite the market to follow suit.

Once a trend is formed, private speculative capital will follow suit.

The dealer's 3 million will have several times the effect.

For speculative capital that wants to make a profit, the easiest way is to borrow a large amount of franc banknotes, then exchange them for gold, wait for the franc to collapse and start depreciating, and then use gold to exchange francs back to repay the creditors.

For example, someone now borrows 1 million francs in banknotes and buys 300 kilograms of gold to store.

After the devaluation of paper money, 300 kilograms of gold could be exchanged for 5 million francs.

He used 1 million of it to repay his debts, and paid a maximum of a few hundred thousand in interest, making a profit of nearly 400 million for free!
Of course, all this is based on the premise that the franc will collapse.

If the market doesn’t collapse, the interest that the short side has to pay will be fatal - don’t underestimate the interest of tens of thousands of yuan, it is a huge sum of money if you don’t make any profit!
So how can we prevent speculative capital from following suit?

It's very simple, just make sure they don't see the possibility of the franc collapsing.

Many classic examples of "short-long wars" in later generations all started with forced long positions. In comparison, the financial wars in the 18th century were as "innocent" as a baby.

Once a long trend is formed, the short side will soon suffer heavy losses.

Brian 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 believe me, at most half a month, the people who exchanged gold will disappear.

"Besides, I have a powerful backup plan available to me."

After Joseph and the two finance chiefs discussed the plan of going long on the franc in detail, he thought of another thing:

“Then, next we need to find out who is behind this malicious exchange incident.

"Eman, please send Monsieur Fouché to see me."

(End of this chapter)