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You've obviously never had to build a system that tracks bonds when their original currency no longer exists. ;)
by rjdevereux 11y ago
You've obviously never had to build a system that tracks bonds when their original currency no longer exists. ;)
- brador 11y agoHow would you do that?
- boxy310 11y agoWhen a currency disappears on a planned basis (like the Deutschmark) the government issues a recall of the currency in banks at a set exchange rate: e.g. for the Deutschmark it was set by law at 1.95583 DM = 1 euro (source: https://en.wikipedia.org/wiki/Deutsche_Mark https://en.wikipedia.org/wiki/Deutsche_Mark) When a currency disappears entirely (like with Zimbabwe), there's a much more chaotic basis as it switches to separate sovereign currencies, which often have different inflation rates baked in. As this can be much more unexpected than a planned currency transition, the market often doesn't incorporate the expected changes in real interest rates, and often the exchange rate needs to keep floating for a while to account for ongoing inflation. More info on Zimbabwe's abandonment of their currency: https://en.wikipedia.org/wiki/Zimbabwean_dollar#Abandonment_and_demonetization https://en.wikipedia.org/wiki/Zimbabwean_dollar#Abandonment_...
- abduhl 11y agoSeems like the easiest way would be to tie the payment to the cost of a basket of goods at the time of the issuing of the debt or at the cessation of the currency, whichever paid less (assuming you are the person paying) and then converting that to dollars at the date of the cessation of the original currency and then paying that amount.
- murbard2 11y agoI'm glad I never had to, but that edge case doesn't obviate the advantage of issuing perpetuities.
- exelius 11y agoI wouldn't say it's an edge case; it eventually will happen to any perpetuity.
- ghshephard 11y agoWell, if the payment is specified in gold, it will be a very long time before that medium is not available.
- tome 11y agoYes, but also the issuer of any perpetuity will go out of existence.
- exelius 11y agoNot if they're the Dutch government, apparently.