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CURRENCY, FRENCH INDOCHINA

As the French moved to consolidate the Indochinese Union in 1887, they simultaneously created a common currency for the emerging colonial state, the Indochinese piastre or piastre indochinoise. In 1885, the governor general of Indochina approved a decree officially making the piastre de commerce legal tender for Indochina, pegging the piastre at one Mexican dollar (24.4935g silver). In 1895, the colonial government reduced the silver content to block the export of piastre coins and the colonial currency was from this point referred to simply as the piastre. In 1920, the piastre was pegged to the French franc but regained convertibility between 1921 and 1930, when the Bank of Indochina pegged the piastre to the franc (1 piastre = 10 French francs). This remained the case until World War II, though Indochina ended pegging its exchange rate to gold following the French abandoning the gold standard in 1936. However, the rate of 1 piastre to 10 French francs continued, at least nominally, until the Japanese overthrew French Indochina during the coup de force of 9 March 1945, took control of the Bank of Indochina and the Institut d’émission, and began printing massive quantities of 500-piastre notes (triggering equally high levels of inflation). Following the Japanese defeat in August 1945, the colonial piastre was no longer the unrivalled currency. When Ho Chi Minh declared the creation of the Democratic Republic of Vietnam (DRV) on 2 September 1945, he also created a Vietnamese national currency, the dong. Two currencies, one colonial, one national, competed with each other from this point as the French moved to reimpose their state, currency, and economic control. On 17 November 1945, the French high commissioner for Indochina, based in Saigon, issued a currency confiscation order to reduce inflation and to deny colonial currency to the DRV based in Hanoi. The massive number of 500-piastres notes issued by the Japanese after 9 March 1945 were prohibited and demonetized, with very little compensation. The French required that the other notes be deposited and were blocked until 20 September 1946. On 26 December 1945, the high commissioner’s office, led by the financial advisor François Bloch-Lainé, revalued the piastre from 1 piastre = 10 French francs to 1 piastre = 17 French francs, based on the questionable assumption that Indochina had fared better than France during the war. This move was also designed to increase French exports to the colony. The piastre remained pegged to 17 francs until May 1953, when the French unilaterally devalued the piastre to its prewar parity of 10 francs, but without consulting the Associated States of Indochina. This unilateral decision angered local leaders and only reinforced the desire of all three states to obtain their full independence rapidly, especially in the financial domain. During the Indochina War, the overvalued exchange rate between the French franc and the Indochinese piastre gave rise to the “piastre affair”. By purchasing the piastre at the market price of ten francs and then presenting the same piastre to the Office Indochinois des changes – legally obligated to buy the piastre at 17 francs – speculators made a tidy profit of seven francs for every piastre, all at the expense of the French taxpayer. Soldiers paid in francs also benefited from this overvaluation. The French government tolerated this practice until the French daily Le Monde exposed its workings in a November 1952 article that caused the biggest scandal of the war since the affaires des généraux. The source of this report was a former employee of the Office des Changes in Saigon, Jacques Despuech. With documents in hand, Despuech published a book on the subject, Le Trafic des piastres, and implicated some of the highest-ranking leaders in Vietnam and France. Under such scrutiny, the French government decided on 11 May 1953 to devaluate the piastre to 10 francs. The Associated States demanded and obtained fuller independence from this point. See also CURRENCY, DEMOCRATIC REPUBLIC OF VIETNAM; ECONOMY OF WAR; FINANCIAL COST OF WAR; NORODOM SIHANOUK; ROYAL CRUSADE FOR INDEPENDENCE.