Life of Being a Crown Prince in France-Chapter 966 - 874: Counterattack the Shorts

"An additional 8.6 million francs in gold exchange applications within 5 days?" Joseph slightly frowned and looked at Lafitte, "Please elaborate."

"Yes, Your Highness." The manager of the Bank of France Reserve bowed slightly, "These clients have diverse backgrounds, but all refuse alternative exchange methods. The amounts are at least over 300,000 francs.

"Earlier, the exchanges were mainly concentrated at the Paris Bank, but starting yesterday, banks in Reims and Orleans have also received exchange applications."

Brian added from the side, "There are also numerous rumors in the financial markets saying ’the Bank’s gold reserves are exhausted’ or ’the government will soon terminate the banknotes-for-gold exchange service.’"

"Currently, the news hasn’t spread widely among the public, but there are still citizens queuing at the banks to exchange gold."

Joseph asked Brian again, "What is the current ’non-exchangeable quota’ for francs?"

’Non-exchangeable quota’ is a financial term meaning the portion of the national banknotes issued exceeding the gold reserves.

Brian immediately replied, "58 million francs, Your Highness."

Considering the current market scale and economic situation in France, the scale of over-issuance is completely within the safe zone.

Joseph pondered and nodded: "It seems someone is maliciously shorting the franc. Mr. Lafitte, how much gold stock does the Paris Bank have?"

"There are 530,000 ounces left, Your Highness."

After Lafitte spoke, seeing the Crown Prince frowning, he hurriedly added, "Which is approximately equivalent to 51 million francs."

Joseph couldn’t help but show a solemn expression.

At the current rate of exchange, the gold reserves would be depleted within a month.

Moreover, such things never develop linearly; the lesser the bank’s gold stock, the more severe the bank runs become.

Coupled with someone maliciously spreading rumors, it might not take long before there’s a demand to exchange tens of millions of francs worth of gold in just one day.

Once the bank’s gold reserve is exhausted, it immediately triggers a currency crisis and an economic crisis.

Brian and Lafitte exchanged a glance and said, "Your Highness, to ensure financial stability in Paris, should we transport some gold from other places?"

Joseph immediately shook his head.

Paris has reserved gold worth 50 million francs. In normal trade activities, the slow flow of banknotes and gold should definitely be sufficient.

If a large amount of gold is drawn to counter malicious shorting, it will definitely severely impact the external trade of various regions, especially the border provinces—with nations like the Ottoman Empire and Russia, trade still relies on gold.

Brian continued, "Then, let’s expand the ’remote delivery terms’ scope, for example, lowering the start amount to 100 francs.

"Or increase the large exchange fee to 2%..."

Using banknotes for large gold exchanges incurs bank fees, currently at 0.8% for amounts over 5,000 francs. In the era of low bank efficiency, this was the norm in various countries.

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

In financial games, what’s the most important?

Confidence!

As long as the market has confidence, even a broken stone will attract continuous investment.

Conversely, once market confidence collapses, no matter how healthy your financial system is, it will be crushed by the bank runs.

Brian anxiously said, "Your Highness, if we don’t take measures according to the current trend, there will definitely be some major trouble..."

Joseph tapped the armrest of the chair with his finger, quickly recalling various financial sniper cases from the future, and then suddenly relaxed his brow.

Why panic?

The fundamentals of France’s economy don’t have major problems; under these circumstances, I have many cards to play.

Even those countries that experienced economic crises in the future could hold on for several years with some maneuvering.

Even if France’s situation really worsens, I can easily copy a few tricks to cover the bottom line, and later rely on fiscal revenue and war dividends to slowly recover.

He immediately looked at Brian and said, "Confidence. First, we need to give the market ample confidence."

"You mean?"

"Reverse the measures you just mentioned." Joseph smiled and said, "Reduce the use of ’remote delivery terms,’ and even if activated, try to deliver gold within 15 days.

"Lower the large exchange fee to 0.7%, and spread the word that the Bank has improved operations, and in the future, fees might be reduced to 0.5%."

Both Brian and Lafitte widened their eyes in shock.

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

Joseph completely disregarded their expressions, continuing to "hammer" their nerves:

"Moreover, this large-scale shorting behavior, just relying on the initiator’s ’ammunition’ is definitely not enough. Therefore, there must be a lot of short positions appearing in the market.

"We continue to reverse-operate, massively throwing long franc trades, shorting gold!"

The short sellers aiming to break through the 50 million francs worth of gold reserves at the Bank need to prepare 50 million francs of banknotes as ’ammunition.’

Such a large amount of funds, let alone private capital, would be extremely strenuous even for a state-level market maker.

So they usually prepare only part of the ammunition, say 20 million francs, and then use this money to incite market followers.

Once the trend forms, there will be private speculative capital following along.

The market maker’s 20 million will have a multiple effect.

And those speculative capitals looking to profit, the simplest method is to borrow a large amount of francs in banknotes, then exchange them for gold, wait for the franc to collapse and depreciate, and then exchange the gold back into francs to repay creditors.

For example, someone now borrowed 1 million francs in banknotes, bought 300 kilograms of gold to stockpile.

After the currency depreciates, 300 kilograms of gold can be exchanged for 5 million francs.

He uses the 1 million within to repay the debt, at most pays another hundred thousand or so in interest, netting nearly 4 million!

Of course, the premise for all this to work is that the franc must collapse.

If it doesn’t, then the interest costs for the shorts will be lethal—don’t underestimate the ten thousand or so interest; without profit, it’s a huge amount!

So how do you make speculative capital not dare to follow suit?

Simple, just make them see no possibility of the franc collapsing.

Many classic "short-long" battles in the future started with counter-long operations.

Brian nervously said, "Your Highness, if the situation doesn’t improve, the national finances will fall into..."

Joseph raised his hand and interrupted him: "Please trust me"

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There is still a conclusion, almost done writing.

Jacques Lafitte, a French banker and politician. Son of a carpenter, he worked early on as a bookkeeper at a bank in Paris’s Perge, became a shareholder in 1800, and became the bank owner after Perge in 1804. The Pergo Lafitte Company’s bank became one of Europe’s largest banks, and he served as its director. In 1814, he became President of the French Central Bank and Chamber of Commerce Chairman. In the same year, he raised large sums for the Temporary Government, and during the Hundred Days, he raised funds again for Louis XVIII.