Can finance meet the expectations of the French?

Finance has changed profoundly since its beginnings and particularly in recent years: development of environmental or social criteria, arrival of blockchain… At the same time, behaviors have changed with the rise of ETFs, the rejuvenation of investors and the reduction of holding periods for securities. In the current political context, radically opposed visions are clashing. Is finance really viable in France?

Politicians are (again) attacking finance!

French society is today marked by deep divisions, particularly between the proponents of a more or less liberal economy and those who defend a more united and equitable model. Social movements, protests against pension reform and debates on tax justice illustrate these tensions well.

From a more liberal perspective, some politicians advocate a market economy with minimal government intervention. “Liberal” policies propose deregulation and tax cuts to stimulate economic growth. Thus, apart from a few politicians, liberals are not represented in France. It is more of a case of “useless intervention”.

Politicians: what positions do they adopt on finance?

Conversely, interventionists advocate a redistribution of wealth and increased regulation of financial markets to avoid “excesses” and “protect” citizens. The New Popular Front, for example, proposes a “reinforced” tax on financial transactions. Similarly, Emmanuel Macron proposes extending the financial transaction tax to Europe. Note that this tax only applies to equity investments intended for France. Surprisingly, even a large part of the LR party is in favor of broadening the base of the financial transaction tax to inter-day transactions. This example reflects quite well the general direction of the financial debate in France.

Reinforcing this tax would certainly reduce the average holding period, capital inflows into France and the flexibility of many investors. The vision of finance in France is therefore rather naturally skeptical, especially when it comes to new assets. Thus, the New Popular Front sees cryptocurrencies as “speculative tools to be strictly regulated.”

The debate around “solidarity finance”

Solidarity finance is a form of financing aimed at supporting projects with “social or environmental utility”. The broadening of these considerations, particularly through ESG criteria, has given rise to a multitude of funds and criteria. But this concept takes on particular importance in the current context in France, marked by growing political and social tensions.

In finance, sustainable funds generally show lower returns than other funds but benefit from a better image. While it is clear that the development of “solidarity finance” influences the organization and strategy of companies, political support is not as clear. In addition, it remains difficult for many medium-sized companies to meet the requirements of increasingly standardized financing.

Key figures

In 2022, the amount of solidarity savings reached 24.5 billion euros, an increase of 20% compared to the previous year. Even if this amount still remains marginal compared to overall savings in France, it demonstrates a growing interest among savers in responsible and ethical investments.

Solidarity savings products, such as the Sustainable and Solidarity Development Booklet (LDDS) and sharing funds, have raised around 600 million euros. In addition, the government has strengthened advantageous tax measures, such as income tax reductions for subscriptions to the capital of solidarity enterprises (SOFICA) and the advantages linked to the SME-ETI Share Savings Plan (PEA).

Limitations and challenges

Despite these advances, solidarity finance in France faces several obstacles. First, awareness of these products remains limited. A Finansol study shows that only 20% of French people are aware of the existence of solidarity finance. This lack of visibility hinders broader engagement of savers.

Furthermore, the profitability of solidarity finance products is often lower than that of traditional financial products, which can dissuade some investors. The projects financed, although meaningful, are often perceived as riskier. This limits the appeal of large institutional investors. Finally, regulatory requirements for monitoring and transparency sometimes represent an obstacle for small structures.

Is the path to financial centralization inevitable?

For over a century, we have observed a trend toward centralization of the banking system in the United States and Europe. Since 1990 in France, the number of banks has increased from more than 1,800 to 769 in 2021 (-58%!). This phenomenon is mainly linked to regulatory and normative inflation, but it is also linked to extraordinarily low rates after 2010. The concentration of the financial system around large national or global players favors: the rise of a few standardized products, higher fees, increased risks and the risk of political collusion.

However, the extreme centralization of finance seems to have been disrupted by some innovations. In particular, the arrival of blockchain seems to challenge the way finance is practiced.

A community and decentralized vision: the contribution of cryptocurrencies

Bitcoin and other cryptocurrencies offer an alternative to traditional financial systems. Indeed, their decentralized nature allows for greater transparency and reduced dependence on centralized financial institutions. This regulatory and practical shift between the old world and the new calls into question the sustainability of traditional finance. In fact, more and more managers, banks or funds are favoring the development of blockchain as a support for long-term financial assets.

Generally speaking, blockchain enables the evolution of finance in the following areas:

• Transparency and traceability. Blockchain makes it possible to track each euro invested in a project. This helps ensure that funds are used in accordance with the stated objectives. In addition, it strengthens the confidence of donors and investors.
• Reduction in transaction feesBy eliminating middlemen, blockchain generally reduces transaction fees. This allows more funds to be channeled directly to projects.
• Speed. Blockchain transactions are executed in real time. This accelerates project financing and the implementation of initiatives.
• DemocratizationBlockchain facilitates access to financial services for unbanked populations by offering decentralized microcredit and payment solutions.

However, some emphasize the high energy consumption of Bitcoin. There are still many economic blockchains that meet the needs of tomorrow’s finance.

Conclusion

Solidarity finance in France represents an innovative and necessary response to sustainable issues. In France, the regulation and control of finance seem particularly developed. The tax on financial transactions reflects this relatively common conception of finance. At the same time, the rise of standards and regulations has led to the development of solidarity finance. The public authorities have put in place incentive measures and advantageous tax systems.

This new approach to finance nevertheless presents certain limits. Despite sustained growth, the diffusion of solidarity finance still remains moderate. The associated returns are often lower and the procedural requirements for businesses greater. Additionally, finance faces a growing problem of centralization. In Europe and the United States, the concentration of the banking sector results in less competition, which can affect consumers.

In this context, finance needs to regain a certain flexibility to face the challenges of tomorrow. Blockchain, in particular, plays a crucial role in the modernization of solidarity finance. It provides full transaction transparency, significant reduction in transaction fees and increased efficiency. This technology is revolutionizing the way solidarity funds are managed and distributed. It also makes it possible to include unbanked populations in the financial system, thanks to decentralized microcredit and payment solutions. However, blockchain still has certain limitations to be widely applied and used by traditional finance.