Chapter 3: History of Sovereign Debt
To put sovereign debt and consequential debt defaults in context, this chapter discusses the history and trends in sovereign finance over the past 300 years. I examine the major lenders, borrowers, and defaulters, throughout the period beginning in the eighteenth century, when foreign loans began being granted using the system as we know it today. 1700–1820 Long before London became the financial center of the modern world, there was Amsterdam. From 1700 until about 1820, Amsterdam was the center of international finance. During this period, Dutch and English lenders made funds available to sovereigns through bond issues, direct investments, official loans, and suppliers’ credits.1 The earliest sovereign borrowers in this period included Austria, France, and Denmark. Later, Sweden and Russia became borrowers, as did the United States. In this era, sovereign loans were not overly complicated transactions, and – being generally unrelated to each other – defaults did not present systemic problems. 1820–1920 From the 1820s onwards, London became the center of international finance. The British and the French were the two most powerful nations, and dominated the world economy. During this time, sovereign loans were made through bond floats led by merchant banking houses in London and Paris. The English family bank Baring Brothers and the French bank N.M. Rothschild were the most important in the lending business. The borrowers in this period were many. The new colonies in Latin For details of loans made by Dutch and English lenders and yields on them during the eighteenth and nineteenth...
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