French Franc (FRF)

The French Franc (also known by its ISO 4217 currency code, FRF) was the official currency of France for over two centuries before it was gracefully retired to make way for the Euro (€). While it officially ceased to be an independent currency on January 1, 1999, when the exchange rate was irrevocably fixed to the Euro, Franc notes and coins remained in circulation until early 2002. More than just money, the Franc was a symbol of French history and economic sovereignty, tracing its roots back to the 14th century and becoming the national standard during the French Revolution. Its life story is a fascinating drama of stability, war, inflation, and devaluation, offering timeless lessons for today's investors about the nature of money and risk. For a value investing practitioner, understanding the rise and fall of a major world currency like the Franc provides a masterclass in why a country's economic health is just as important as a company's balance sheet.

The Franc's history is a rollercoaster that reflects the turbulence of France itself. Its journey offers a powerful reminder that all currencies, no matter how established, are subject to the forces of politics and economics.

Though a coin called the “franc” first appeared in 1360, the modern decimal French Franc was born out of the French Revolution in 1795. It was a symbol of a new, rational order. For much of the 19th century, it was a beacon of stability, especially as the cornerstone of the Latin Monetary Union, a precursor to the Euro that included Belgium, Italy, and Switzerland. This period of stability, backed by gold and silver, highlights how monetary systems can foster trade and economic integration when confidence is high and the rules are respected.

The two World Wars shattered this stability. The immense cost of conflict and reconstruction led to rampant inflation, severely eroding the Franc's purchasing power. The government responded with a series of devaluations throughout the 20th century to make French exports cheaper and boost the economy. The most famous move came in 1960 under President Charles de Gaulle, who introduced the “New Franc” (nouveau franc), chopping two zeros off the old one (100 old francs = 1 new franc). This was a psychological bid to restore public faith in a currency that had been battered by instability, a classic government playbook for dealing with a monetary crisis.

You might ask, “Why should I care about a currency that no longer exists?” Because the Franc’s story is not just history; it’s a living textbook on currency risk, packed with insights that are more relevant than ever in our globalized world.

The Franc’s journey is the ultimate case study in currency risk. It proves that even a major currency from a G7 nation can lose significant value over time due to political and economic pressures. For an investor, this means:

• Your real return is what’s left after inflation and currency depreciation. A stock that goes up 50% in a currency that loses 50% of its value has left you with nothing.
• National debt matters. A government buried in debt, as France often was, may be tempted to inflate its way out, effectively stealing from savers and foreign investors.
• Politics and money are inseparable. The Franc’s value was often at the mercy of political decisions, a reminder to always assess a country's political stability and the independence of its central bank.

The constant currency fluctuations and competitive devaluations between the French Franc and the powerful Deutsche Mark were a major headache for European businesses. The creation of the Euro, managed by the independent European Central Bank (ECB), was a direct attempt to solve this problem. By adopting a single currency, member countries gave up their power to devalue, tying their fate to a system designed for low inflation and stability. Understanding the Franc's chaotic past helps explain why the Euro was created and the trade-offs it represents today.

The spirit of the old French Franc lives on in any national currency subject to high government debt and political meddling. A smart value investor looks beyond the company and scrutinizes the currency it operates in. Before you invest internationally, ask yourself these questions:

• What is the country's debt-to-GDP ratio? A high and rising ratio is a red flag.
• How independent is the central bank? Can it resist political pressure to print money?
• What does the balance of payments look like? Is the country living beyond its means by consistently importing more than it exports?

By learning from the French Franc, you can better protect your portfolio from currencies that might look solid today but could become tomorrow's cautionary tale.