The Finnish Markka or the French Franc? Currency Stability and the Logic of Credit Cycles
Written 27.10.2026
ECONOMICSMACROECONOMICS
Stefan-Niko Tanskalainen
10/26/20264 min read
The Finnish Markka or the French Franc? Currency Stability and the Logic of Credit Cycles
Why the compatibility of neighbouring economies may matter more than the size of their financial markets.
Two hypothetical exits from the euro
What would happen if Finland or France were to leave the euro area and reintroduce a national currency? Such a scenario would raise many questions about monetary sovereignty, financial stability and the future relationship with neighbouring economies.
Rather than debating the political likelihood of either scenario, it is useful to consider a narrower economic question: which currency relationship might offer a more natural foundation for stability — a Finnish markka linked closely to the Swedish krona, or a French franc operating alongside the British pound?
The comparison is hypothetical. Neither currency can be evaluated using an existing modern exchange-rate series. Nevertheless, current financial-market structures and historical exchange-rate movements provide a starting point for examining the underlying problem.
What exchange-rate volatility tells us
Conceptual illustration — curves are not verified empirical estimates.
The accompanying charts compare the pound sterling and the Swedish krona against the euro, their respective central-bank policy rates, foreign-exchange market turnover and private-sector credit relative to GDP.
The purpose is not to claim that historical movements would automatically repeat under a new monetary regime. Instead, the charts help distinguish three factors that are often treated as if they were the same: monetary policy, financial-market liquidity and the underlying credit cycle.
A currency can trade in a deep market and still experience substantial movements. Likewise, a smaller market does not necessarily produce a less stable exchange rate. Market depth affects how readily transactions can be absorbed; economic and monetary compatibility influences the pressures that generate those transactions in the first place.
This distinction matters when considering the hypothetical reintroduction of national currencies.
Market size is not the same as economic compatibility
The United Kingdom's foreign-exchange market is considerably larger than France's when measured by reported trading activity through dealers in each location. The difference is approximately twentyfold in the figures considered here. Sweden's foreign-exchange market is also larger than Finland's, but the estimated difference is closer to fourfold.
These figures describe the scale of foreign-exchange trading infrastructure, not the total amount of credit available to either economy. Nor do they establish a direct relationship between market size and future exchange-rate volatility.
They nevertheless highlight an asymmetry worth considering. A hypothetical French franc operating alongside sterling would be entering a relationship between currencies supported by financial markets of very different scale. A hypothetical Finnish markka–Swedish krona relationship would also involve unequal markets, but the difference would be smaller.
That observation alone cannot settle the question. The more important issue is whether the two economies could accommodate each other's economic shocks without repeatedly generating destabilising pressure on the exchange rate.
The importance of credit-cycle compatibility
Credit cycles influence investment, consumption, asset prices and the demand for financing. When credit expands rapidly, domestic demand may strengthen and imports may rise. When households, businesses or banks begin reducing debt, spending and investment may weaken.
If two neighbouring economies experience these changes at different times or with different intensity, their monetary authorities may face conflicting priorities. One economy may need tighter monetary conditions while the other needs easier credit. If their currencies are separate, the exchange rate can absorb part of the adjustment — but that adjustment can itself create uncertainty for businesses and investors.
A currency relationship may therefore be more manageable when the underlying economies have compatible trade structures, financial connections and credit-cycle dynamics. Compatibility does not require identical economies or identical interest rates. It requires that economic differences remain manageable and that the institutions governing the currency relationship can respond credibly to shocks.
This is the central hypothesis behind comparing Finland and Sweden with France and the United Kingdom.
Why Finland and Sweden may offer a more natural comparison
Finland and Sweden are neighbouring Nordic economies with extensive regional economic connections. Their proximity and business relationships provide a plausible basis for studying whether their economic cycles could be compatible under a hypothetical monetary arrangement.
The fact that Sweden has its own currency also makes the krona a useful reference point for considering how a reintroduced Finnish currency might interact with an existing national monetary system.
France and the United Kingdom have substantial trade and financial links as well, but their relationship is structured differently. Their markets differ considerably in scale, and a hypothetical French franc would operate in an environment shaped by the existing role of sterling in international foreign-exchange trading.
The argument is not that Finland and Sweden necessarily have more synchronised credit cycles. That would require a separate empirical test using comparable data on private credit, lending standards, output, trade and investment. Rather, the Nordic relationship provides a specific hypothesis worth testing: a Finnish markka could potentially operate within a more balanced regional market structure than a French franc would face alongside sterling.
What the evidence can — and cannot — establish
Historical exchange-rate volatility, central-bank rates, market turnover and private credit relative to GDP are useful indicators, but none can independently predict the behaviour of a currency that does not currently exist.
A rigorous assessment would need to examine the correlation of Finnish and Swedish credit cycles, the sensitivity of both economies to common shocks, their trade and investment links, and the credibility of any proposed monetary framework. It would also need to consider how investors would price a newly introduced currency and how its central bank would establish a record of monetary stability.
The charts should therefore be read as a framework for comparison rather than a forecast.
Conclusion
The choice between a hypothetical Finnish markka and a hypothetical French franc cannot be resolved by comparing market size alone. The more relevant question is whether the currency would be supported by a compatible economic and financial environment.
The difference in foreign-exchange market scale is one observable structural factor: the gap between the United Kingdom and France is substantially larger than the gap between Sweden and Finland in the figures considered here. This may make the Nordic case a useful starting point for investigating a more balanced currency relationship.
But the decisive test would be the compatibility of credit cycles, trade flows and responses to economic shocks. A currency's potential stability depends not simply on how large its market is, but on how well the monetary arrangement fits the economic relationship it is designed to serve.
That is the hypothesis worth testing before drawing conclusions about either a Finnish markka or a French franc.
