The U.S. Debt Restructuring of 1933: Consequences and Lessons

Sebastian Edwards, Francis Longstaff and Alvaro Garcia-Marin

No 21694, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In 1933, the U.S. unilaterally restructured its debt by declaring that it would no longer honor the gold clause in Treasury securities. We study the effects of the abrogation of the gold clause on sovereign debt markets, the Treasury's ability to issue new debt, investors' willingness to hold Treasury bonds, and on the Treasury's borrowing costs. We find that the restructuring was followed by a flight to quality in the sovereign market. Despite this, there was little effect on the Treasury's ability to sell new debt or the willingness of investors to roll over restructured debt. The Treasury incurred a marginally higher cost of capital by issuing new bonds without the gold clause.

JEL-codes: E43 E44 E65 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-his, nep-mac and nep-opm
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