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February 16, 2011

Treasury Single Account: A Revolutionary Idea…in 1806!

Posted by Franck Bessette        

While the concept of a State Treasury (le Trésor in French) was created in France in the XIIIth century in the sense that public monies were at that time separated from the king’s personal cash-box, the French monarchy still used separate bank accounts for various purposes. The concept of the Treasury Single Account (TSA) in France was the result of the long struggle of the various revolutionary governments after 1789 to meet their cash needs. During most of the revolutionary period, private bankers, some of them in charge of collecting taxes, were providing central government with the necessary cash but at a very high cost. The creation of a TSA in France was a gradual process, mostly accomplished during the first half of the XIXth century. It would be difficult here to give a detailed account of the reforms of the Treasury system in France during this period but this post would like to briefly underline the three major steps of this process.

Step one: Count Mollien and the Treasury Single Account Concept (1806) 

Count Mollien (see the picture above), very much trusted by Emperor Napoleon, is probably one of the most important historical figure for PFM in France for at least three reasons. He introduced double entry accounting in the ministry of finance in 1808. He also created the supreme audit institution, the Cour des Comptes in 1807 and he introduced the concept of the TSA (unité de caisse) with the imperial decree of July 16, 1806. Count Mollien considered the Treasury’s reliance on funding from private bankers unhealthy (and costly) and noticed that the system did not even negate the risk of Treasury default, as some famous and painful events confirmed at the time. He therefore established the Caisse de service, which was basically an offsetting system in charge of compensating between areas and counties (départements) with excess cash and areas where receipts were insufficient to meet expenditures. This mechanism became the instrument used to regulate what was pleasantly called at the time the “general movement of funds”, in order to avoid unnecessary borrowing costs. The Caisse was also able to act as the Treasury’s bank and issued “service bonds”, predecessor of the T-bills.

Step two: Napoleon and the “Treasury Correspondents” (1811)

In 1811, Napoleon was actively preparing the invasion of Russia, which was to lead in 1812 to the destruction of Moscow by fire but also to the “burning” of vast amounts of cash for the equipment of an army of 771,000 soldiers and the functioning of a logistical system stretching along thousands of kilometers. The imperial decree of February 25, 1811 obliged all municipalities to transfer “all funds, exceeding the needs of service” into the Caisse de Service. The minister of finance was to decide which funds were deemed in excess. This principle still largely stands today, even if some derogation can be authorized by law, and was extended later on to other sub-national entities and even to independent public entities after the First World War. In exchange for this obligation, the Treasury makes monthly advances to sub-national entities on the expected collection of  local taxes. In 2009, only 45 % of Treasury daily flows related to central government. Sub-national entities represented around 30%. This points to a notion that is now copied is quite a few other countries nowadays: the “Treasury correspondents”. They are defined as individuals or entities (sub-national governments for instance) which, by law or voluntarily keep funds in the Public Treasury. The practice of individual correspondents making use of the State Treasury was abolished in 2001. In 2009, Treasury correspondents represented 55% of all daily Treasury flows, thus providing a stable resource for central government cash needs and avoiding unnecessary reliance on borrowing.

Step three: Opening of the TSA at the “Banque de France” (1857)

The Banque de France was created on 18 January 1800 by Napoleon Bonaparte, in his function then of First Consul, to foster renewed economic growth in the wake of the deep recession of the Revolutionary period. In June 1857 a law from the Second Empire, under Napoleon III, transferred the TSA to the Banque de France. In exchange for the right of note issue, the Bank started handling the Treasury's cash transactions free of charge (the Bank now receives remuneration for this task and pays interests to the Treasury on deposits) and granted the government advances to meet its financial needs.

The Treasury system reform gradually engineered in France during the first half of the XIXth century benefited from powerful incentives (i.e., considerable cash needs due to the fact that the new-born Republic and the first Empire was engaged in wars with neighboring monarchies for several decades.) It was also a time of emergence of the Nation State and an increasing role of the State in provision of public services, tax collection, and management of the economy, in general. The system has since then been modernized and refined several times but it still remains today broadly based on the same principles established in the first half of the XIX century.


Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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