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Independence and the Effect of Empire The Case of “Sovereign Debts” issued by British Colonies

Nicolas Degive () and Kim Oosterlinck ()

No 19-018, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: “Sovereign” bonds issued by colonies are often supposed to benefit from an implicit imperial guarantee. This guarantee is usually presented as the main reason why yields on colonial bonds are exceptionally low. This paper investigates investors’ perception of this guarantee during the interwar period, a period during which some guarantors faced financial turmoil and some colonies began their journey towards independence. On the basis of an original database tracking the yields of six colonial bonds we show that, in general, market participants believed the guarantee would be honored. This general observation needs however to be nuanced. In 1931 when Britain left the gold standard, investors felt the British guarantee was less valuable. Furthermore when colonies were facing extreme financial distress markets reassessed the likelihood the guarantee would be honored. This was also the case when it became clear that India would become independent.

Keywords: Sovereign Debt; British Empire; Colonial borrowing; Independence (search for similar items in EconPapers)
JEL-codes: N24 N40 N45 (search for similar items in EconPapers)
Date: 2019-10-22
New Economics Papers: this item is included in nep-his
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