Sunday, July 2, 2023

That Time England Defaulted On Everyone And Every Thing

As foreseen by Shakespeare.*

From Cambridge Core:

The Stop of the Exchequer and the Secondary Market for English Sovereign Debt, 1677–1705 

Ling -Fan Li 

Based on information related to the Stop of Exchequer, 1672, this article calculates the current yields of sovereign debt and examines the effect of the Glorious Revolution on the government’s credibility. The results show that even though the interest payment had not been paid for years, when Parliament authorized the resumption of payment, the current yields fell not only below the level when the interest payment was made by Charles II, but quickly converged to the rates of return of alternative investment. The movement of current yields supports that the constitutional change of 1689 did enhance the government’s credibility. 

Urgently needing to equip the fleet, on 2 January 1672 Charles II defaulted on the loans borrowed against Treasury orders, which is known as the Stop of Exchequer (Horsefield 1982). The creditors included not only the goldsmith-bankers directly involved in the King’s financial affairs but also members of the public who had deposited money with the bankers. When the crown’s fiscal situation eased following the third Anglo-Dutch war, Letters Patent were issued in April 1677 to secure the payment of interest to those affected by the default. Despite this, the government’s initial creditors were badly treated (Milevsky 2017, pp. 185–90); in the literature, this default is used as a classic example to demonstrate the lack of credibility of the Stuart monarchs. 

Following the rapid expansion of joint-stock companies in the late seventeenth century, the growing trade in joint-stocks led to the development of a secondary market for financial assets (Davies 1952; Carlos and Van Stone 1996; Carlos, Key, and Dupree 1998; Murphy 2009, pp. 10–38). Since the first payment of interest, a secondary market for sovereign debt related to the Stop developed, and original creditors could transfer their right to permanently receive annual interest payments to a third party. Interest payments initially received by creditors and later re-assignments in the period 1677–1705 were recorded in the Exchequer
of Receipt. This documents that the trade in sovereign debt was active and the annuity had a certain liquidity. Records of these secondary transactions provide a data-rich (both quantitatively and qualitatively) resource allowing this article to examine the government debt market itself, and quantitatively assess the long-standing question of the impact of the Glorious Revolution on the government’s credibility perceived by the investors....

....MUCH MORE (25 page PDF)
"Default Dear Brutus is not in our stars, But in ourselves, that we are underlings."
—not quite Julius Caesar, Act 1, scene 2 (1599?)

For a far more egregious example of dissolute sovereigns , we have on offer:

Think You Know Sovereign Debt? "Lending To The Borrower From Hell: Debt and Default in The Age Of Philip II, 1556-1598" (plus a tiny treasure)