Academic journal article The Review of Social and Economic Issues

Victor Place as Early Advocate of Fractional Reserve Central Banking in Romania

Academic journal article The Review of Social and Economic Issues

Victor Place as Early Advocate of Fractional Reserve Central Banking in Romania

Article excerpt

Victor Place was a French diplomat born in 1818, having served in St. Dominique and Mossul before being appointed at the Consulate of France in the Principality of Moldavia, in September 1855. He served as Consul until April 1863, having thus been a witness and involved actor in the transformations brought about by the 1859 unification of Romania. In fact, his role in the unification process and in other matters of institutional design in the new state was far from negligible (Bârgoanu, 2011). Although his career took him afterwards to Turkey, Madagascar, India and the United States, he married a Romanian and later returned to live at his brothers in law in Moldavia, where he also died, in January 1875 (Baicoianu, 1932a, p. 252).

In counselling on finance and banking, Victor Place was involved with the planning and creation of the National Bank of Moldavia (Smirna, 2015; Smirna & Topan, 2015). Also, sometimes between July 1859 and November 1859, Prince Alexandru Ioan Cuza asked the French government to offer Place the necessary leave to act as delegate for the negotiation of the foreign public credit of 60.000.000 francs in Paris and to arrange for the minting of a national money. Victor Place was entrusted by Cuza with other important tasks in the institutional design of the new regime. Baicoianu presents him as the arch-strategist of Prince Cuza for the reorganization of the new Romanian state based on French blueprints (Baicoianu, 1932a, p. 235)


I am going to present and comment on two documents written by Victor Place about the design and problems of banking in the Principalities. They can be found in the Annexes of Baicoianu's Istoria politicei noastre monetare si a Bancii Nationale: in Annex 47, Notes pour une banque roumaine de Moldavie, and Annex 48, Restauration de l'ancienne banque de Moldavie sous le nom de Banque Roumaine (Baicoianu, 1932b, pp. 624-639).

The importance of these documents is crucial, because they relate directly the plans for the creation of a central bank in Romania with a minute argumentation of the economic principles that such a bank should be based on. To my knowledge, these two reports are a virtually singular systematic treatment that this problem has received in the Romanian intellectual environment shortly before 1860.

The first document seems to be written for instructing the laymen and, specifically, the stockholders of the National Bank of Moldavia, on the principles of credit and banking1.2The author starts by describing barter and the advantage that indirect exchange has over it. Besides the usage of money, another step toward economic development is credit. It is the impulse of credit that commerce in the Principalities lacks. Presently, credit is used

without method, without rules and ineffectively. The syncopated oscillations of money's rate, the high level of interest and discount, usury without shame and limit, all these are of the most serious kind. [...]

The Credit being thus recognized as the most effective money in developing the public wealth in a country, a National Bank for Circulation and Discount, as a basis and regulating instrument for credit, is also as indispensable as the foundations of a building. I will not insist here on this truth that has come to be considered an axiom in the financial world [...].2 (Baicoianu, 1932b, p. 624) 3

Place begins his demonstration of the benefits of credit with a simple example of a loan operated by short term promissory note for a reputable businessman. The supplier that acted initially as creditor also needs funds, and, using his and his debtor's recognition, he uses the note to obtain credit from his supplier. With this step repeated several times, the author tries to argue that the effect of credit is multiplied. This multiplication, he says, is the reason for the great distance that separates economies that use financial paper from the ones that only use cash for payments (Baicoianu, 1932b, p. …

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