I use the term “Military Finance” to cover those aspects of finance that can be used in wartime against an enemy. This is a very important aspect of fighting a military campaign and it is usually overlooked.
The average soldier or service personnel may not realize how important this aspect is as it is a “world away” from the fighting on the frontline. In essence, it helps to ensure that the manufacturing necessary for the soldiers to be resupplied with ammunition, food, heavy equipment (artillery, tanks), aircraft, ships etc. to keep functioning. If the financial aspects of war fighting cease to function properly then the collapse of the battle fronts is inevitable as there will be a lack of supplies.
Military Finance covers aspects such as Numismatics (currencies and their forgeries), Scripophily (the study of paper based financial documents), trading on financial markets, and economic sanctions.
This is a brief summary of such activities:
Numismatics – Military Money
Sovereign nations print their own Banknotes or they use them from a common shared currency (e.g. the European Euros). When there is an armed conflict inevitably the currencies of the belligerents are also in conflict – especially on the Foreign Exchange markets.
Militaries need to pay their personnel money and they in turn need it to pay for in theatre purchases from other military establishments etc. or from civilian organisations / people. An example of which is buying food from the local civilians.
As a result of this militaries often print their own paper money generally using a similar system (e.g. in World War 2 French Francs or German Marks) to that previously used in the respective country. Military personnel can then use this money within that country.
The invading forces bring their “new” money with them and the local population are forced to convert the pre-war currency into the “new” invader’s currency. By doing this the invader can offset some of the costs of the war by giving unfavorable exchange rates to the indigenous population.
This replacement of the indigenous currency with the “new” invader’s currency normally causes the old original local currency and any military banknotes of the “looser” to be invalid. In some cases, especially in the Far East during World War 2 it was a capital offence to use the previous currency (currencies) and not the Japanese “Invasion” Money.
Numismatics – Camp Money
This is the study of paper currencies as used in Prisoner of War camps, Concentration Camps, and Internment Camps. Within these environments this paper money was used and original examples tend to be rather scarce. They are often highly collectable and have reasonable monetary value.
Numismatics – Forging Banknotes
This aspect covers the deliberate forging of an enemy’s paper money (banknotes). The main aim of this is to weaken confidence in the paper money used by the enemy such that it is either: (1) devalued in the foreign exchange markets, (2) creates inflation by flooding the enemy economy with large quantities of paper money or (3) so that people loose confidence in the banknotes they have as they may not be genuine examples (i.e. forgeries).
During World War 2 the Germans undertook “Operation Bernhard” (see International Bank Note Society Journal Volume 47 No 4 Page 29 dated 2008). This was the largest military led counterfeiting operation up to that date and it was fairly successful.
This type of operation can cause the targeted Government to consider introducing a replacement type of banknote. For example, say British £10 notes were highly counterfeited then the British Government may have to introduce a new £10 design to replace the previous counterfeited design. This takes time and is naturally costly. Sadly, this type of operation does not just occur during wars!
Scripophily – Forging Bonds and Similar Paperwork
This field is rather specialized and it covers a few aspects of finance. Historically, Governments and large corporations issued certificates for financial instruments called Bonds. They are basically certificates representing loans made by the Bond Holder to the Bond Issuer.
For example, the UK Government in World War 2 issued “War Bonds” which were loans made by individuals / investors to the UK Government. The individual / investor gave the UK Government (cash) money and they were then given a Bond Certificate in return.
It was the Confederate Government in the USA that was the first Government to finance a war by issuing Bonds. They issued secured loans (against the cotton crop) and unsecured loans. When the Confederates lost the war their Bonds were deemed worthless so the investors who had bought / paid for them found that there was no value attached to the Bond Certificate. In 1987 Coutts Bank organised a Creditors Committee and took legal action against the “current” US Government requesting the redemption / interest payments on these debts!
Traditionally Bond Certificates were in Bearer Form (“Bearer Bonds”) which meant that the person holding the physical certificate was due the repayment of the debt. Hence the appeal to forge this type of financial paperwork especially as they are usually for significant amounts of money. Again, if there are sufficient forgeries then the issuer can have serious problems sorting the valid certificates from the invalid.
Trading on Financial Markets
Banks and large companies trade on financial markets for items such as shares in companies, bonds issued by Governments or large corporations, foreign exchange, commodities (e.g. precious metals and oil etc.), financial derivatives etc. These activities occur during peacetime but during wartime they have increased importance.
For example, if the terrorists (al-Qaeda) behind the New York “Twin Towers” attack on 11 September 2001 (9/11) took positions on financial markets prior to the attack they could stand to financially profit from the attacks. Similarly, say an attack on oil production facilities is about to happen which would impact oil prices then positions can be taken in financial markets such that oil is obtained at a cheaper price.
When wars or invasions commence the local stock market can plunge (such as per 9/11 above) so the “invader” has prior knowledge and can therefore can trade effectively via “insider trading”.
Economic Sanctions
These are where a Government outlaws trading with a foreign Government / companies / individuals. They are long term measures and their benefits are sometimes dubious. This type of activity falls more in the economics sphere rather than having a direct military application. As such it is outside my specialisation.