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Even if it goes along with the upcoming tariff cuts, France could still adopt a protectionist course by imposing a special tax on imports. A more conventional cure for inflationary troubles, of course, would be a tax increase to sop up demand. But France's taxes are already high, and it would be difficult, if not impossible, to raise them without making Frenchmen even more restive. Indeed, the De Gaulle government has promised to cut income taxes and consider giving industry new tax relief.
A Good Thing. The crisis eroded confidence in the franc. In Europe, tourists who wanted to exchange French currency had trouble finding buyers, wound up paying far more than the official rate. On the London market, the price of the franc dipped as low as 19.80 U.S. cents, well beneath the exchange rate of 20.225 cents. Intervening in order to prop up the price, the Banque de France instructed the Swiss-based Bank for International Settlements and the New York Federal Reserve System to buy up francs in its behalf.
The initial flight from the French franc, mostly into West German marks and Swiss francs, was not as widespread as it might have been. One reason was that relatively few French francs were in foreign hands. The real danger came from Frenchmen, some of whom were already carrying suitcases filled with francs across the border to sell in Switzerland. Because of the shutdown of French banks, such activity was fairly limited. But once the banks reopen, there could be a rush to withdraw savings. Historically distrustful of their own currency, many Frenchmen began keeping their money in francs only after De Gaulle came to power in 1958. The current crisis could very well scare much of it back into foreign currencies.
Faced with that prospect, the De Gaulle government slapped tight restrictions on the movement of private capital—both francs and gold —out of the country. With traffic in francs thus curbed, France called off its efforts to support the currency in Europe. But the Federal Reserve Board at week's end was still buying francs at Paris' behest, and France obviously was going to be forced to dip deeper into its substantial reserves—including $5 billion in gold, $1 billion in dollars—if the run on its currency worsened. That not only ruled out the likelihood of any further French-government raids on Washington's gold stock, but also meant that some French-held gold might even find its way back to the U.S. Any inflationary upsurge in the French economy, meanwhile, would help spruce up trade figures of West Germany—which already accounts for 19.2% of France's total imports—as well as those of Britain and the U.S. Thus, said David Rockefeller, president of New York's Chase Manhattan Bank, on a visit to Brussels, a French trade deficit might even be "a good thing for the dollar in the long run."