Annexes
Monetary transition
Exit from the euro, lex monetae, capital controls and banking stabilization
Methodological precaution
The figures and mechanisms presented in this annex are constructed from available economic studies - Fondation Res Publica 2013, CEPII, OFCE, Banque de France studies - and sourced official data. The orders of magnitude are assumed as such. Formal validation of the costed hypotheses is delegated to the competent sovereignist economists mandated for review prior to publication. Certain figures are explicitly flagged as update priorities: they condition major architectural decisions and cannot be left relying on data predating 2020.
1. Why the monetary transition is the central issue
1:04 PM
The exit from the euro is presented in the manuscript as a vital urgency: the first priority of the transition, without prior negotiation with the European Union. This position is not ideological, it is structural. As long as France remains in the euro, it controls neither its monetary policy, nor its sovereign financing, nor the pricing mechanism for its electricity, nor its budgetary rules. Economic sovereignty without monetary sovereignty is a facade.
But the monetary transition is also adversaries' number-one point of attack against the project. Catastrophist arguments - hyperinflation, banking collapse, GDP collapse - are systematically raised to paralyze any debate on exit. This annex addresses them one by one, with the available data, without dodging the real risks.
What serious studies say about exiting the euro
The 2013 Fondation Res Publica study models several scenarios for the dissolution of the eurozone. Its conclusions: a strong devaluation of the franc produces positive effects on French growth in the medium term, and no scenario results in the collapse of intra-European trade. The catastrophist assessments forecasting -10% of GDP have not been validated by any independent study. The inflationary impact is structurally limited, but more complex to estimate than it appears, as developed in section 4.
Sources: Fondation Res Publica, Les scénarii de dissolution de l'euro, September 2013; OFCE, devaluation simulations 2016; CEPII 2017.
2. The exit timeline
The exit from the euro takes place within one week, through sovereign notification followed by immediate technical implementation. Negotiating before exiting means accepting that the EU defines the conditions of our departure: that is, renouncing sovereignty before even having exercised it.
| Action | Justification | |
|---|---|---|
| Sunday evening (arrival in power) | Public announcement of the exit from the euro and the EU | Announcement during market closure: minimizes the immediate reaction |
| Monday to Thursday (4 days) | Technical preparation: conversion of banking systems, printing of the first francs, activation of capital controls | Capital controls already active from Monday morning |
| Friday evening (markets close) | Official exit from the euro, franc created at 1-to-1 parity, automatic conversion of all accounts into francs | Exit at market close: weekend to absorb the technical shock |
| Weekend | Technical conversion of banking systems, payments, contracts | 48-hour window without markets to finalize the conversion |
| Following Monday (day 8) | 1 franc = 1 euro at opening, natural devaluation by the markets thereafter | 1/1 issuance parity, market devaluation progressively over the following weeks |
Note - annex dedicated to operational timing
The operational detail of the transition week is the subject of a separate annex dedicated to the timing of the overall transition. This section only deals with the major monetary milestones. The complete operational plan - which also involves the exit from NATO, the dissolution of the Constitutional Council and the first institutional measures - is covered in this dedicated annex.
3. The issuance parity and the devaluation
3.1 Why 1 franc for 1 euro
The franc is created at 1-to-1 parity with the euro. This is not an economic decision, it is a decision of communication and collective psychology. Announcing an immediate devaluation right from issuance would send a catastrophist signal that would amplify capital flight before controls are even fully operational. Devaluation happens naturally in the following weeks through the markets. Without political announcement, without a panic signal.
3.2 The expected devaluation
Available studies estimate the natural devaluation of the franc at between 15% and 25% against the euro in the months following the exit. This range reflects the structural undervaluation of the euro for the French economy: a currency designed for the German economy is mechanically overvalued for a less export-oriented economy.
A 20% devaluation of the franc means French exports cost 20% less for foreign buyers, an immediate competitiveness gain for French industry. The OFCE has simulated that a 20% devaluation would produce 22,000 additional jobs in the first year and 74,000 jobs after three years. Spain and Italy experienced similar effects during their 1992 devaluations.
Sources: Fondation Res Publica 2013; OFCE, 20% devaluation simulation, 2016.
4. Inflation - real risk, magnitude to be specified
Inflation is the primary argument of those opposed to the exit. It is real, but its magnitude is more complex to estimate than it appears. It splits into two components of a different nature that must be treated separately.
4.1 Direct inflation and indirect inflation - a crucial distinction
The inflationary impact of a devaluation is not limited to products directly imported by households. Two channels must be distinguished.
Direct channel. Households directly purchase imported products - clothing, electronics, certain foodstuffs. This content directly imported into household consumption was estimated at 14.5% in 2013. It has probably increased slightly since the deindustrialization of 2013-2024: updated estimate: 15 to 18%. A 20% devaluation on this fraction produces ~3 to 3.6% direct inflation.
Indirect channel. French companies use imported raw materials, components and intermediate goods to produce goods sold in France. A car assembled in France with foreign electronic components or imported steel sees its production cost rise if the franc depreciates - and this extra cost is passed on to the final price even if the product is "made in France." This indirect channel is significant: total imports represent ~25% of French GDP (INSEE 2024), and a large part ends up in household consumption via domestic value chains.
Incorporating second-round effects through value chains, the inflationary impact of a 20% devaluation is probably higher than the 3-4% from estimates that only count direct imported content. The real order of magnitude depends on the speed at which cost increases are passed through to sale prices and on companies' capacity to absorb part of the shock through their margins. This precise costing is a priority for the economists mandated for validation: this is the inflationary hypothesis that most directly conditions the social acceptability of the transition.
4.2 Energy inflation - a special case
Oil is historically denominated in dollars. With a franc devalued by 20%, the cost of oil imports rises by the same amount in francs: a specific inflationary pressure on energy and transport.
Three factors mitigate this risk. First, France produces between 65 and 68% of its electricity from nuclear power, depending on the year, the cost of which is domestic and not indexed to the dollar. Second, the progressive de-dollarization of oil is underway: contracts in yuan, rubles and other currencies are developing. Third, the sovereign doctrine on oil does not tie itself to either the dollar or the yuan, through the diversification of supply contracts in francs or multiple currencies depending on the supplier, and the progressive transition toward algal biofuels over a 10-20 year horizon.
| Estimate | Status | |
|---|---|---|
| Direct inflation (household imported content) | +3 to +3.6% over 1-2 years | Calculable: 15-18% of consumption × 20% devaluation |
| Indirect inflation (value chains) | To be precisely costed | Validation priority: depends on the structure of value chains |
| Energy inflation (fuels excluding nuclear) | +5 to +8% in the short term | Mitigated by 75% domestic nuclear |
| Overall short-term estimate | High-end conservative range used | To be refined by mandated economists |
5. Capital controls
Capital controls are activated on the Monday morning following the announcement, simultaneously with the exit notification. This is the main lesson of the Icelandic model of 2008: act before capital flight materializes, not after.
5.1 The Icelandic model - what we retain and what we adapt
In October 2008, Iceland implemented emergency capital controls following the collapse of its banking system. These controls were maintained until March 2017, i.e. 8.5 years. They made it possible to stabilize the Icelandic krona, protect the domestic economy during reconstruction, and avoid foreign capital flight. The key lesson: normal trade flows were maintained throughout, only pure capital movements were blocked.
5.2 Architecture of French capital controls
| Régime | Justification | |
|---|---|---|
| Trade flows (imports, exports of goods and services) | Authorized without restriction | Maintain real economic activity, explicit Icelandic lesson |
| Wages and current contractual payments | Authorized without restriction | Non-negotiable social and economic continuity |
| Repatriation of dividends by foreign multinationals | Blocked | Universal rule: no exception, to avoid unequal treatment and circumvention |
| Disposals of assets to foreign entities | Blocked | Prevent the fire-sale of strategic assets during the transition |
| Cash transfers to foreign parent company | Blocked | Circumvention of controls via intra-group flows |
| Euro accounts held abroad by French residents | Held in foreign currency | Dependent on the law applicable to the bank concerned, not on nationality |
| New incoming foreign investments | Authorized with BdF registration | Icelandic model: authorize inflows, block outflows |
5.3 Duration and gradual lifting
Initial duration: 6 months, renewable in 3-month increments up to a maximum of 12 months without an additional political decision. Beyond that, an explicit sovereign decision is required; controls are not automatically renewed indefinitely.
The lifting is gradual and conditioned on three indicators: stabilization of the franc on the foreign exchange markets, sufficiently advanced rescheduling of foreign bank debts, and Banque de France foreign exchange reserves above a minimum threshold defined before the transition.
6. Public debt and the lex monetae
The lex monetae is the principle of international law according to which a sovereign state has the right to define its currency and to convert into that currency debts issued under its law. This is not a contestable theory, it is precisely the mechanism that enabled the conversion of franc-denominated debts into euros in 1999, enshrined in EC Regulation No. 1103/97.
6.1 The structure of French public debt
| Value | Source | |
|---|---|---|
| Total public debt | ~€3,400 billion | INSEE, Q1 2025 |
| Share issued under French law (convertible via lex monetae) | 97 to 99%, ~€3,300 to €3,370 billion | CEPII 2017, legal studies: convergence of all sources |
| Share issued under foreign law (non-convertible) | 1 to 3%, ~€34 to €100 billion | Residual: OATs issued under foreign law |
| Share held by non-residents | ~55% | Banque de France, 2025 |
| Annual interest charge (whole general government) | ~€60 billion in 2024, ~€67 billion in 2025 | FIPECO 2024, Cour des comptes 2025 |
The fundamental distinction - who holds vs under which law
The most common confusion is to conflate who holds the debt with under which law it is issued. A Japanese pension fund holding French OATs holds debt issued under French law: it will be converted into francs by lex monetae even though the creditor is foreign. The creditor's nationality changes nothing about the law applicable to the contract. Direct consequence: even though 55% of public debt is held by non-residents, it is convertible into francs at a rate of 97-99% because it is issued under French law.
Sources: CEPII, Quels effets un réalignement du taux de change produirait-il sur les dettes?, 2017; Banque de France 2025.
6.2 Conversion into francs - mechanism
Conversion takes place by sovereign decree at a rate of 1 franc to 1 euro. All public debt under French law is redenominated into francs at this parity. Foreign creditors holding French OATs therefore receive francs, the value of which subsequently evolves through market devaluation in the following weeks.
This mechanism has a direct precedent: it is exactly what happened in reverse in 1999, when franc-denominated debts were converted into euros by application of the lex monetae.
Note for English-language readers - "French law" vs. nationality
Throughout this section, "French law" refers to the legal jurisdiction governing the debt contract (i.e. the law under which the bond was issued), not the nationality of the bondholder. This distinction matters because English-language financial reporting sometimes uses "foreign debt" loosely to mean either concept. Here, the two are independent: a foreign investor (Japanese, British, American) holding debt issued under French law is subject to conversion via lex monetae just like a French investor, because conversion follows the law of the contract, not the holder's nationality.
7. The interest moratorium
The moratorium temporarily suspends the payment of public debt interest for the duration of the transition. It is a massive lever that frees up a significant safety cushion.
7.1 Scope and amount
The moratorium covers the entirety of the public debt's interest charge, not only the portion under foreign law. Even debts converted into francs generate interest payments that are suspended during the transition.
| Suspended interest (base €60-70 billion/year) | Usage | |
|---|---|---|
| 3 years | ~€180 to €210 billion | Floor: short transition |
| 4 years | ~€240 to €280 billion | Central scenario |
| 5 years | ~€300 to €350 billion | Ceiling: long transition |
Source: FIPECO, 2024 interest charge = €58 billion; Cour des comptes, 2025 projection = €67.6 billion.
7.2 Allocation of the cushion - two distinct needs
The moratorium generates €60-70 billion/year. These resources must cover two distinct needs that cannot be conflated.
Need 1: Emergency banking stabilization. The devaluation of the franc creates a mechanical strain on the foreign debts of French banks. The short-term maturities to be covered in the first 6 months represent an immediate stabilization need, the precise calibration of which is an absolute priority for updating (see section 8).
Need 2: General safety cushion. The remainder of the moratorium - after banking coverage - constitutes the cushion available to finance the urgent reform agenda items of the transition: reindustrialization, energy, defence.
7.3 The nature of the moratorium - full rescheduling with compensation
Suspended interest does not disappear. It accumulates and is repaid at the end of the moratorium according to a deferred schedule of 3 to 5 years. For this deferral not to constitute a real loss for creditors, the deferred principal and interest are revalued to the inflation index observed during the transition period, capped at a reference rate defined in advance (for example, the average 12-month EURIBOR of the pre-transition period, or a sovereignly set ceiling rate). The creditor thus recovers the nominal value increased by a compensation that preserves the purchasing power of their claim.
This mechanism matters legally: without compensation, a unilateral deferral of payment constitutes a credit event within the meaning of international financial contracts - it triggers CDS, downgrades the sovereign rating and can be reclassified as a technical default by agencies and by creditors' courts. With compensation, the arrangement comes closer to an orderly renegotiation of the "Paris Club" type, whose precedent is well established in international law.
France nonetheless assumes a residual effect: the notification itself of a unilateral deferral may trigger French sovereign CDS, independently of the compensation paid to creditors. CDS are derivative financial instruments whose triggering is defined by ISDA contracts, not by the economic quality of the underlying claim. This effect is assumed for two reasons. First, holders of French sovereign CDS are overwhelmingly foreign speculative funds whose exposure should not condition French sovereignty. Second, the impact on subsequent borrowing capacity is mitigated by the return to monetary sovereignty: a state that can finance itself through its central bank is no longer constrained to borrow at rates set by rating agencies.
This is therefore not a default in the economic sense, nor a write-down for the creditor, who fully recovers the real value of their claim. It is a deferral that is assumed, compensated, and communicated from day one. France gives its word that it will repay in full, in real value: it simply asks for time.
A state that fully repays its creditors even in a period of turbulence sends a sovereign credibility signal of the highest order. This is coherent with the project as a whole: a state that restores high treason to its criminal code, that dissolves institutions because they have failed, and that nonetheless honours every cent of its financial commitments is a state whose word is worth something. Sovereign credibility is built on coherence between actions.
8. Banking system stabilization
The banking system is the most serious systemic risk of the entire monetary transition. It must be understood precisely - neither minimized nor exaggerated - and addressed in the right order.
8.1 How a bank works - the simplified balance sheet
A bank operates with a balance sheet. On one side, its assets: what it owns or what is owed to it: mortgage loans, business loans, government bonds, equity holdings. On the other, its liabilities: what it owes to others: customer deposits, bonds issued on international markets, interbank loans.
Equity capital is the difference between assets and liabilities, the safety cushion. A bank is solvent as long as its equity capital remains above 8% of its risk-weighted assets (Basel III rule). Below that, it can no longer legally operate.
8.2 The problem created by the devaluation
Large French banks have issued bonds on international markets and borrowed from foreign banks. These debts are denominated in euros or dollars under foreign law and are therefore not converted into francs by the lex monetae.
With a 20% devaluation of the franc, these debts cost 20% more to repay in francs. The strain on bank balance sheets is real and must be addressed quickly.
ABSOLUTE UPDATE PRIORITY - CRITICAL DATA POINT
The only available data on the share of French banking liabilities under international law is the 2017 CEPII figure: 8 to 10% of the liabilities of banks resident in France between 2012 and 2016. This data point has since gone through four major crises (Covid 2020, the 2022-2024 rate hikes, the 2022 energy crisis, the 2026 Iran war) and the Basel IV regulatory tightening, all of which have substantially altered the structure of bank balance sheets. On balance sheets exceeding €8,000 billion for the four major French banks combined, a 2-percentage-point gap represents a €160 billion difference in the risk calculation. This figure directly determines the sizing of banking stabilization. It is imperative to update it via the Banque de France and the BIS before any architectural decision on the banking response. This is the most strategically sensitive data point in this entire annex.
8.3 The sequence of action - three levers in order
Lever 1: Capital controls (day 1). Capital controls prevent foreign creditors from demanding immediate repayment of their claims. They cannot withdraw their capital and are therefore forced to wait for the rescheduling. Without this lever, none of the following steps are possible.
Lever 2: Containment of the devaluation differential (weeks 1-4). The state takes on only the value differential created by the devaluation on short-term maturities, the first 6 months. This is not a nationalization of the banks nor an assumption of all their foreign debt. It is coverage of the immediate mechanical shock to keep the banks operational. In return, the state takes a stake in the capital of the banks concerned - with the sovereign golden share.
Lever 3: Rescheduling of foreign bank debts (months 1-18). The state, having become a significant shareholder, negotiates with foreign creditors the rescheduling of bank debts. Same logic as for public debt: full repayment guaranteed, deferred schedule of 3 to 5 years, no write-down, no loss for the creditor. France's word also holds for its banks during the transition.
| Tool | Cost to the state | Result | |
|---|---|---|---|
| Day 1 | Capital controls | None | Time gained for rescheduling |
| Weeks 1-4 | Containment of short-term differential | To be calibrated: update priority (see box above) | Banks stable and operational |
| Months 1-18 | Rescheduling of foreign bank debts | Inflation cumulée sur le montant du moratoire | Repayment flow rescheduled over 3-5 years |
| End of transition | Full repayment of principal + interest according to deferred schedule | None, everything paid - creditors repaid down to the last penny | Banking system durably stabilized |
9. The ECB - assets and liabilities
9.1 France's Target2 position
Target2 is the eurozone's interbank settlement system. Countries whose residents import more than they export accumulate negative Target2 balances - this has historically been the case for France. This position represents a claim by the ECB on the Banque de France. Its treatment upon exit - repayment, freeze, compensation - is to be calibrated by the mandated economists based on the most recent ECB data.
9.2 Foreign exchange reserves and gold
| Estimated value | Decision adopted | |
|---|---|---|
| Gold reserves | ~2,400 tonnes, 4th worldwide : ~€150 billion at current price | Retained as sovereign reserve of last resort, no public anchoring announced |
| Foreign exchange reserves (foreign currencies) | Variable, Banque de France data | Retained for managed floating: intervention possible, not systematic, to avoid disorderly depreciation |
| Participation in ECB capital | To be liquidated or frozen upon exit | To be calibrated by the mandated economists |
Announcing that the franc is backed by gold would create a target that the markets would immediately test by massively selling francs to demand gold. France would risk losing an irreplaceable part of its strategic reserves within days.
Communication may mention the reserves as an implicit guarantee of sovereign solidity, without turning it into a promise of convertibility that would create an obligation enforceable under international law.
10. Existing contracts and commercial relations
10.1 Existing commercial contracts
Commercial contracts follow this rule: lex monetae for contracts under French law, respect for the contractual currency for contracts under foreign law until their natural term. Attempting to impose the lex monetae on contracts under foreign law would create massive disputes in foreign jurisdictions with no guarantee of success.
10.2 Relations with countries remaining in the euro
No specific transitional regime with eurozone countries. The franc floats freely against the euro from day one: a clear signal of sovereignty and a sharp break with structural dependence on the euro. French companies manage exchange-rate risk just as they already do with the dollar or the pound.
10.3 Deposits and mortgage loans
All household and business deposits in French banks are automatically converted into francs at the 1-to-1 parity rate. All outstanding mortgage and consumer loans are converted into francs at the same rate. Monthly repayments remain identical in nominal value, expressed in francs.
11. Summary - what is solid, what needs updating
11.1 What is documented and defensible
| Level of solidity | Source | |
|---|---|---|
| 97-99% of public debt convertible via lex monetae | Very solid - consensus across sources | CEPII 2017, legal studies |
| Market devaluation of 15-25% after issuance | Solid - range from available studies | Fondation Res Publica 2013 |
| Moratorium freeing up €60-70 billion/year | Very solid - official data | FIPECO 2024, Cour des comptes 2025 |
| Capital controls, Icelandic model | Solid - documented precedent | Central Bank of Iceland 2008-2017 |
| 1/1 issuance parity then natural devaluation | Solid - psychological and technical logic | Convergence of analyses |
| Full rescheduling without write-down or default | Solid - doctrinal and legal coherence | Sovereign position of the project |
11.2 Update priorities before publication
| Urgency | Why | |
|---|---|---|
| Share of banking liabilities under international law (2017 CEPII data outdated) | CRITICAL | Determines the sizing of the entire banking stabilization. 8-year-old data, since crossed by 3 major crises |
| Indirect imported content via value chains (real inflationary impact) | HIGH | Determines the inflation estimate - 2013 figure probably underestimated |
| France's Target2 balance and its treatment upon exit | HIGH | Updated ECB data required |
| Calibration of sovereign monetary creation compatible with controlled inflation | HIGH | Precise macro modelling required |
| Exact schedule of foreign banking maturities by maturity bracket | HIGH | BIS data required to calibrate the short-term stabilization need |