Nation-Building and Corruption: A Warning from French Vietnam

Nation-building has long been a popular project—albeit a controversial one—among Western nations. Nation-building is a complicated activity, one that requires balancing such a wide variety of considerations, and making hard choices about what areas to prioritize. As a result, anticorruption is sometimes neglected or ignored in the nation-building process. This, however, is a mistake. Unchecked corruption can have devastating effects on nation-building. And while contemporary critics make this point in the context of modern nation-building initiatives, such as U.S.-led efforts in Afghanistan, there are also compelling historical illustrations of how tolerance of corruption can help derail the nation-building project. One such lesson comes from the French experience during the First Indochina War.

Though France had held on to Vietnam with ease from the mid-nineteenth century to the early days of World War II, the post-war era spelled trouble for the French Empire in Southeast Asia. The Viet Minh, a burgeoning nationalist force led by Ho Chi Minh, challenged French colonial dominance in the region, eventually securing the support of China and the Soviet Union. By the early 1950s, France’s military campaign against Ho’s guerrilla forces was flailing. So, rather than trying to continue to hold Vietnam as a colonial territory, French leaders decided to create an independent Vietnamese state. In attempting to build this new country, however, French leaders turned a blind eye to a corruption scheme—the so-called “Piastres Affair”—that would gravely weaken this enterprise.

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The Case Against High-Denomination Bank Notes

Although the use of cash continues to decline in both the legitimate and illicit economies, lots of criminal transactions, including bribe payments, still use cash—slipped into pockets or envelopes, or carried in briefcases and suitcases. The anonymity, untraceability, and universal acceptance of cash make it useful for many types of criminal activity, including not only corruption, but also drug trafficking, human trafficking, and terrorism. Cash is also indispensable to money laundering, because it both obscures the source of funds and enables money to flow undetected across borders. (As a Europol report observed, “[a]lthough not all use of cash is criminal, all criminals use cash at some stage in the money-laundering process.”) Indeed, as governments and banks increasingly scrutinize electronic transactions, parts of the illicit economy will embrace cash all the more.

Nobody seriously argues for eliminating cash entirely. But there is a simple step that monetary authorities can and should take to make cash-based criminal transactions substantially harder, without substantially impinging on the legitimate cash-based economy: eliminate high-denomination notes.

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