18th January 1800

France tries again after Scottish bank collapse

The Bank of France came into existence on 18 January 1800. However, the country’s first central bank, the Banque Générale, had been established much earlier – in May 1716 – by Edinburgh-born economist John Law.

It was the first bank to issue paper money and had been an immediate success – for a while – but was bankrupted in 1720 (by which point it had been renamed the Banque Royale) and closed. Having had its fingers burned, France steered clear of any kind of central bank until 1800, at which point the current institution was established under the name Banque de France.

What remained of those burned fingers could have ended up being pointed at Law himself, as it was another of his schemes that brought down the Banque Royale.

Monopoly over French trade

Law used government money to buy the Mississippi Company, which was granted a monopoly over French trade with North America and the West Indies. France’s hefty national debt could then be paid off through the company’s commercial activities, and by exploiting the mineral wealth of the Mississippi Valley. In theory.

Naturally, any company backed by the government would be seen as a safe investment, so its perceived wealth increased enormously – at an extremely rapid rate. The public bought into it, and the value of its shares rocketed. Of course, this couldn’t last.

Bank and company merge

The bank and the company had merged, and each share was effectively a banknote, representing a specific amount of coinage. The trouble was, the value of shares in the market massively exceeded the value of currency in circulation, and the bank was unable to pay back its debt to the shareholders. The Mississippi bubble burst and Law was forced to leave France.

He abandoned more than 20 chateaux, which were confiscated by the state, and supported himself by gambling. This eventually brought him to Venice, where he died on 21 March 1729.