Olivier Klein and Olivier Lendrevie — 27 April 2026
Monetary debasement, long associated with the manipulation of precious metals, today encompasses a more diffuse process: the risk — under certain conditions — of a gradual or sudden destruction of the value of money through the excessive creation of liquidity. This dilution of scarcity, set in motion by the end of the Bretton Woods system in 1971 and amplified after the 2008 crisis, is now profoundly reshaping the relationships between generations, social classes and monetary powers. Under the Ancien Régime, debasement referred to reducing the gold or silver content of coins in order to expand the money supply for the benefit of the sovereign power, at the expense of those who held the currency.
After 1944, the Bretton Woods system established a stable hierarchy: the dollar, as the only currency directly convertible into gold and the anchor around which the other currencies were organised within a system of fixed parities, became the linchpin of the global system. President Nixon’s decision in August 1971 to suspend the convertibility of the dollar into gold broke that contract of trust and ushered in the era of currencies based on confidence alone — currencies whose value rests on institutions such as the central bank and the State, which confer their sovereignty upon them. The value of modern money is thus tied to the belief in the ability of States to honour their debts and in the ability of central banks to conduct an independent policy that guarantees monetary and financial stability.
This institutional architecture entails a delicate balance. Monetary trust rests on a stable relationship between the evolution of debt and the creation of real wealth. The advantage of modern money is precisely that its quantity does not depend on a stock of precious metals — which is by nature disconnected from the needs of economic development — but on bank credit, which follows the needs of economic actors themselves. However, when money creation ceases over the long term to be correlated with actual growth, trust in the currency can erode to the point of triggering catastrophic crises.
Since the mid-1970s, the expansion of credit has established a regime in which money no longer rests on a tangible, material base linked to an exogenous quantity, but on the counterpart — formed by credit — to the debt of banks, which are the issuers of deposit money. The creation of liquidity in central bank money then increased massively with the support provided by central banks to the economy after 2008 — that is, from the great financial crisis onwards — through their policy of “quantitative easing.” This unconventional monetary policy proved very useful in averting the major deflation and systemic crisis that the financial crisis could have triggered. However, once growth rates and credit production had returned to normal, central banks did not gradually wind down their interventions. The quantity of central bank money thus continued to grow at a pace far above nominal GDP. This dynamic was further amplified during the Covid period — rightly so, since it effectively suspended for a time the monetary constraint on States, which were generously supporting firms and households in order to prevent the pandemic from irreversibly destroying the productive capacity of our economies.
With the abrupt return of inflation, central banks then raised their policy rates very significantly and embarked on a phase of quantitative tightening — or rather of quantitative normalizing, to use the language of central bankers — meaning a reduction in the quantity of central bank money, accompanying a gradual normalisation of monetary policy.
But, between roughly 2017 — the date when our economies returned to normal — and at least the outbreak of the pandemic, the abundance of liquidity, growing faster than GDP, kept long-term interest rates artificially low for too long. The result was a sharp rise in the prices of wealth assets, equities and real estate, together with a compression of risk premia, leading to a build-up of financial risk, an accelerated and dangerous proliferation of zombie firms (which normal interest rates would have driven into bankruptcy) — and therefore a decline in productivity gains — and a rapid increase in the value of asset holders’ wealth.
This asset price inflation — in real estate, equities and bonds — amounted to an artificial revaluation of the wealth of the most affluent households, while younger generations saw the prospect of access to home ownership recede. This evolution signals a social debasement: wealth creation ceases to reflect a fair relationship between effort and reward. That said, it is worth noting that in France, in the sharing of value added, labour income has grown faster than capital income — dividends and interest combined — since 2000, with interest itself falling sharply until 2022, given the squeeze on interest rates and risk premia induced by quantitative easing.
Nonetheless, the rise in asset values and the compression of interest rates have blurred fundamental economic benchmarks. The interest rate, the central tool for the allocation of capital, has lost its function as a signal of risk. Its compression to levels close to zero has driven an overvaluation of assets and, even though France has not experienced a rise in income inequality, has increased wealth inequality.
In parallel, the monetisation of sovereign debt by central banks has become structural: States have financed a non-negligible share of their deficits through central banks’ purchases of the bonds they issued — that is, through the issuance of central bank money — blurring the boundary between fiscal policy and monetary policy. Debt monetisation — its direct or indirect purchase by the central bank — can temporarily resolve the issue of a punitive rise in interest costs that the market might impose in the event of pronounced concern about the level of debt. But this solution carries fundamental dangers as soon as it is repeated and becomes entrenched over time. Unlimited monetisation creates substantial risks of a loss of confidence in the debt and, ultimately, in the currency itself. As for the outright cancellation of all or part of the public debt by the central bank, it would be no more than a zero-sum operation, providing no relief to the budget while taking the risk of profoundly disrupting the confidence of economic actors.
By lifting the monetary constraint — that is, the need to repay one’s debt or to refinance it under normal conditions — one introduces a political moral hazard into the democratic game. Why adhere to budgetary orthodoxy and undertake painful structural reforms when central bank policy neutralises the negative consequences of an uncontrolled debt on interest rates, and when the single currency — the euro — or the currency that enjoys an exorbitant privilege — the dollar — strongly dilutes the usual fallout on interest rates and exchange rate parities?
Yet trust in money refers to a reliable and effective system for the settlement of debts. Money is indeed the means by which the debt arising from market exchanges is discharged: the loss of trust in the proper settlement of debts therefore leads to a loss of trust in the outcome of exchanges, and in money in the very essence of its function. Money is thus the fundamental bedrock of the social bond in market economies, as Michel Aglietta argued.
When trust in State money erodes, economic agents look for substitute assets. Gold, neglected during the period of strong growth, has since 2010 regained its function as a safe-haven asset. The central banks of emerging countries — China and Russia foremost among them — have steadily increased the share of their reserves held in the form of gold, no doubt encouraged by the increasingly frequent instrumentalisation of the dollar for purposes of sanctions (dollar weaponisation) in geopolitical conflicts.
In parallel, the emergence of crypto-assets, foremost among them Bitcoin, embodies in digital form the same aspiration to break free from the arbitrary power of unlimited money creation or sanction wielded by States. By inscribing scarcity in the code, these assets establish a form of technological counter-currency. But, stablecoins aside, they rest on no tangible economic counterpart and remain deprived of the support of any institution capable of underpinning trust in this new currency. Lacking, moreover, the cultural, historical and industrial foundations that contribute to the legitimacy of precious metals as a store of value, these assets ultimately appear unmoored from any fundamental value.
Monetary debasement has also taken on a geopolitical dimension. Since 1945, the pre-eminence of the dollar in international transactions has conferred on the United States a unique power of intervention. This privilege, a pillar of the post-Bretton Woods system, is today beginning to crack under the effect of the diversification of official reserves by the central banks of emerging economies, particularly those of the “Global South,” while China is methodically preparing the internationalisation of the yuan. This strategy aims to build a monetary multipolarity and to reduce dependence on the dollar in trade settlements. The road to that destination will still be a long one, given that the use of the dollar as an international currency produces a lasting hysteresis effect and given the depth and performance of US financial markets. But over the long term, it is certain that the fragmentation of the world and the coexistence of two hyperpowers cannot allow the existing monetary order to be preserved — an order that was the fruit of the sole political, diplomatic, military and economic dominance of the United States, a dominance that has come to an end with the emergence of China as a systemic rival across all of these dimensions.
Monetary debasement, as such, ultimately crystallises two tensions of the contemporary situation: on the one hand, the need to create liquidity in order to preserve the stability and unity of each monetary area, and on the other hand, the risks generated by a sustained excess of such creation. These risks today (but tomorrow?) are no longer principally those of hyperinflation, but rather those of an accelerated asset-price inflation, a generator of financial instability and a destroyer of the social fabric, together with a drift of public debts that undermines confidence in ordinary bank money — leaving open, despite their complete lack of institutional backing, the possibility for private currencies and for gold to serve as safe havens and alternatives.
Monetary history shows that every rupture of the social bond constituted by money leads to an institutional refounding. Monetary debasement is therefore not merely a technical phenomenon: it is a crisis of trust — in institutions, in effort and in the future. In this sense, restoring trust represents the foremost condition of any lasting monetary reconstruction, and must take precedence, in our monetary stewardship, over the temptation to resort to unconventional policies in order to smooth out every economic cycle or to anaesthetise every negative externality.
