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On 7 January at the École Militaire, Christian de Boissieu and Marc Schwartz were awarded the AA-IHEDN Vauban 2025 prize for «The new currency war», published by Odile Jacob. In this rigorous essay, accessible to a wide readership, the two authors analyse the new developments in the currency war, from the emergence of private crypto-assets to the desire for «de-dollarisation», via the possible future of «cash» and the long-awaited central bank digital currencies (CBDCs).
Professor emeritus at the University of Paris-I-Panthéon-Sorbonne, Christian de Boissieu is vice-chairman of the Cercle des économistes, a member of the Académie des technologies, the Académie des sciences d'outre-mer and the Académie royale de Belgique, and former chairman of the Conseil d'analyse économique reporting to the Prime Minister.
Marc Schwartz is a senior advisor to the Cour des Comptes and has been CEO of La Monnaie de Paris since 2018. He has held various positions in the French government (Ministry of the Economy and Finance, Ministry of Culture) and in the corporate world (France Télévisions, Forvis Mazars). He teaches media economics at Sciences Po Paris.
THE TERM «CURRENCY WAR» IS AN OLD ONE, BUT IT SEEMS TO BE TAKING ON AN UNPRECEDENTED DIMENSION TODAY. HOW WOULD YOU DEFINE THIS WAR IN 2026? IS IT A WAR OF VALUES (EXCHANGE RATES) OR A WAR OF INFLUENCE (AREAS OF POWER)?
Christian de Boissieu and Marc Schwartz : Historically, currency wars were first mentioned to describe a situation in which each country, in order to improve its competitiveness, sought to lower its currency at the expense of the others. If everyone starts playing the (not very funny...) game of competitive devaluations (or depreciations), in the end, as in the 1930s, there are only losers.
Today's currency wars also involve two other aspects:
- Competition between reserve currencies, i.e. between the dollar, the euro, the Chinese yuan... with major geopolitical issues at stake.
- Competition between official public currencies and crypto-assets (including, of course, bitcoin), the latter not being currencies today.
In today's world, these three dimensions of the currency war coexist, including in the first sense of the expression, since Donald Trump's United States and China want, in a structural way, to drive down the dollar and the yuan respectively. The distinction between the war of values and the war of power is limited in scope, because the different dimensions of the currency war are interconnected.
CHRISTIAN DE BOISSIEU, HOW DID MONEY GO FROM BEING A SIMPLE TOOL OF EXCHANGE TO AN INSTRUMENT OF INTERNATIONAL COERCION (SANCTIONS, EXTRATERRITORIALITY)?
CB : Money has always been more than an instrument of exchange, even if that is its central and specific function (compared with other assets) in a monetary economy. The notions of power, influence and sovereignty have long been associated with money. I am reminded of the words of US President Andrew Jackson in 1835, which sum up many of the issues involved: « Money is power ".
More recently, when General de Gaulle, on the advice of the economist and senior civil servant Jacques Rueff, denounced the privileges of the dollar as exorbitant, he was placing the monetary debate at its true level: beyond the technical aspects, there are very quickly considerations of general policy and geopolitics, with the prevalence of hierarchies, effects of domination and asymmetries.
MARC SCHWARTZ, AS THE GUARANTOR OF PHYSICAL CURRENCY AND ITS HISTORY, HOW DO YOU SEE THIS TENSION BETWEEN CURRENCY AS A SYMBOL OF NATIONAL TRUST AND ITS USE AS A TOOL OF POWER?
MS : If I may wink, I would say that these two dimensions are the obverse and the reverse of the same coin. Confidence in the currency stems from both economic considerations (price stability, respect for major macro-economic balances) and political considerations (confidence in institutions, a nation's international role).
Economic domination has always gone hand in hand with political influence and monetary domination: this was the case for the United Kingdom in the 19th century.th century with the pound sterling and the United States in the XXth century with the dollar. This is what is at stake today with the erosion of confidence in the American currency, because the influence of the United States is being called into question by the antics of its president.
IN IRAN, THE COLLAPSE OF THE RIAL IS AT THE HEART OF THE CURRENT SOCIAL PROTESTS. CAN YOU GIVE US A TECHNICAL EXPLANATION OF HOW THE COLLAPSE OF A CURRENCY BECOMES A LEVER FOR INTERNAL DESTABILISATION AND A CHALLENGE TO NATIONAL SECURITY?
CB : The collapse of the Iranian national currency is both a cause of the country's general impoverishment and the source of a major inflationary process. Impoverishment because all the values of the Iranian economy, including GDP, fall when expressed in dollars. In this respect, Iran is reminiscent of what has been happening in Lebanon over the last few years.
What's more, the collapse of the rial is driving up the cost of imports, leading to major domestic inflation which is eroding purchasing power and providing the economic and social backdrop to the recent dramatic events.
WITH THE RETURN OF A VERY AGGRESSIVE US POLICY CENTRED ON A «STRONG DOLLAR» OR PROTECTIONISM, IS THE RISK OF MONETARY FRAGMENTATION AT ITS HIGHEST?
CB : Donald Trump wants the dollar to fall further, even though it has already lost almost 15% against the euro by 2025. It is for this reason (but not the only one) that he is attacking Fed Chairman Jerome Powell, criticising him for not cutting the central bank's rates fast enough and hard enough.
In today's world, fragmentation is taking hold economic with the tariff war unleashed by Trump. There is no monetary or financial fragmentation: the international mobility of capital is not called into question, nor is the worldwide interconnection of financial markets that characterises financial globalisation.
DO ATTEMPTS BY CHINA AND THE BRICS TO «DE-DOLLARISE» THE WORLD CONSTITUTE A REAL THREAT TO GLOBAL FINANCIAL STABILITY?
CB : With this question, we are not looking at exchange rates, which fluctuate daily because floating exchange rates have prevailed worldwide since 1973, but at the market shares of the main reserve currencies, which are changing slowly.
The dollar continues to lead by a long way, even though its market share has been gradually but steadily declining over the last twenty years. The euro is in second place, and the Chinese yuan is still a long way off because it is not fully convertible. The global South, and in particular the BRICS, is challenging American power and the dominance of the dollar. They are trying to do without it, and the sanctions against Russia have strengthened the BRICS' motivation on this issue.
But de-dollarisation is now more of a watchword than a financial reality. Even the BRICS, at the end of the day, have to go back to the dollar to plug into global finance. In ten years' time, the reserve currency war will pit the dollar, which is still there, the euro and the yuan, which has great potential for winning market share, against each other.
HOW CAN FRANCE AND EUROPE PROTECT THE EURO'S SOVEREIGNTY? CAN CENTRAL BANK DIGITAL CURRENCIES (MNBC) BE THE NEW BATTLESHIPS IN THIS CURRENCY WAR?
MS : Currency has always been an attribute of sovereignty, and the power to mint money a mark of sovereign power, whatever form that power may have taken: empire, monarchy, republic, etc. The battle being waged today on a global scale with digital currency is therefore first and foremost a battle of sovereignty.
But the United States is way ahead of Europe. Although it has blocked the development of the digital dollar by the Federal Reserve, because Trump is wary of anything federal, it is speeding up the process with dollar «stablecoins», which are developing rapidly and are also making it easier to finance the US budget deficit!
If it is not to be marginalised, Europe too will have to speed up: in the implementation of the digital euro issued by the ECB (we are now only talking about 2029) but also in the euro stablecoins issued by commercial banks. We must not forget the issue of payment infrastructures, which are largely dominated by American players, whether in the field of payment cards (Amex, Visa, Mastercard) or digital players (PayPal, Google Pay, Apple Pay). Europe must also ensure its strategic autonomy by developing payment infrastructures that are not dependent on non-European players.
IS THERE A RISK THAT PRIVATE CURRENCIES AND CRYPTOCURRENCIES WILL PERMANENTLY WEAKEN THE ABILITY OF GOVERNMENTS TO MINT MONEY?
CB : The rise of crypto-assets poses a real challenge to governments and central banks, opening up essential debates. How should we define money and the money supply today? What are the new challenges for the control of money, the conduct of monetary policy and the exercise of monetary sovereignty? We are just at the beginning of major reflections on these issues.
In addition, the arrival of central bank digital currencies raises another issue of disintermediation: banks fear losing deposits that would go to the central bank (for us, to the digital euro), especially during periods of stress and financial crises. And the ECB is doing its best to reassure everyone, for example by setting a ceiling on the amount of digital euros that can be held individually.
IS CITIZENS' CONFIDENCE IN THEIR CURRENCY THE FIRST BULWARK OF A NATION'S RESILIENCE? WHAT HAPPENS WHEN THIS CONFIDENCE IS ERODED IN FAVOUR OF FOREIGN CURRENCIES?
MS : Confidence in money depends on a number of factors, including the ability of the financial system to give everyone easy access to liquidity, particularly in times of crisis. This is the case for commercial banks, which must be able to access the central bank's balance sheet in the event of financial tensions, but also for citizens, who rush to cash dispensers in difficult times.
The European Central Bank showed this again recently in a study nicely entitled: « Keep Calm and Carry Cash »(«Stay calm and keep your cash»). In countries where this confidence is damaged, a negative spiral can be set in motion, leading to an accelerated slide in the value of the currency: hyperinflation, repeated devaluations, collapse of confidence. In this case, economic agents turn to an international currency, such as the dollar, which is considered to be more solid.
More recently, some countries have turned to cryptos (bitcoin) as a form of protection against inflation. But this is an illusion, because bitcoin's volatility distances it from what lies at the heart of confidence in money: the stability of its value over time. The lesson is clear: it's better to keep your own house in order, and thus ensure the stability of your own currency!
FROM THE PERSPECTIVE OF A SUSTAINABLE WAR ECONOMY, HOW CAN DEFENCE FUNDING BE MANAGED WITHOUT TRIGGERING AN INFLATIONARY SPIRAL THAT WOULD WEAKEN THE CURRENCY?
CB : To finance the essential defence effort, we will need to combine several levers. Not central banks: it would be absurd and counterproductive to finance all this by unbridled money creation. We have a lot of private savings in Europe, particularly in France. We need to use financial products and appropriate taxation to attract a significant proportion of these savings towards the long-term financing required for both defence and the ecological transition. Some of this will have to come from European funding.
As for domestic financing, we need to rely on a combination of public and private financing, with government guarantee mechanisms at the core. Savings products collected by banks and other financial intermediaries can only play a supporting role. In this respect, the prudential rules applicable to banks (Basel III international agreements) and insurance companies (European Solvency II regulations) will probably have to be adapted a little, in order to mobilise both a little more.
