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You can really see how much inflation has impacted this. Th note was written for "1,000 Carolus Guilders of 20 Stuivers a piece." I believe the Carolus Guilde

You can really see how much inflation has impacted this. Th note was written for "1,000 Carolus Guilders of 20 Stuivers a piece." I believe the Carolus Guilder was a copy of the Golden Florin, which was 3.5 grams of gold. A gram of gold is about $50 today, so that would make the value of the note $175,000. At the reduced interest rate of 2.5%, the coupon should be $4375 per year. Instead they got $153 for 12 years of interest, a devaluation of 343x.

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computator 6y ago
Could you explain a bit more please? If the annual interest rate was supposed to be 2.5% of the value of 1000 pieces of 3.5g gold coins, which works out to 0.025 x 1000 x 3.5 = 87.5g of gold per year, why aren't they receiving 87.5g of gold or the equivalent of $4375 a year?
- URSpider94 6y ago
  The loan wasn’t denominated in gold, it was denominated in guilders. At the time, guilders happened to be made of gold, but that’s somewhat irrelevant. The interest is 2.5% of the initial value of the bond in guilders, which has almost certainly deflated drastically, and will continue to do so. Put another way, the loan will continue to pay out 14 Euro per year 100 years from now, when that will likely be the cost of one can of soda.
ww520 6y ago
In other words, inflation wipes out debt. No wonder all governments issuing debt like crazy.
- moonchild 6y ago
  No, because interest on debt compounds and the rates are frequently higher than inflation.
  - LeCow 6y ago
    Lol what. I haven't been able to buy government bonds/gilts with an coupon rate hire than inflation for years. At least my equities return when everyone deflates the value of money.
repiret 6y ago
As other responders have pointed out, the interest should be 2.5% x 1,000 Guilders, not 2.5% of the amount of gold that was in 1,000 Guilders in 1,648. Its worth going through the math: 2.5% x 1,000 Guilders = 25 Guilders. The Netherlands replaced the Guilder with the Euro in 2002, with an exchange rate of 2.20371 Guilders per Euro. If we interpret the contact as being due in Euros, then the interest should be €11.34/year, or at today's exchange rate, $13.44/year.
nly 6y ago
Really the problem is the lack of reinvestment of dividends. If they'd reinvested their 2.5% every year, in a similar bond paying 2.5%, then they'd now be collecting dividends of something like $600,000/year... absolutely crushing holding Gold. The fact that this is a perpetual bond is interesting, but rolling an investment through shorter-dated bonds paying 2.5% over the centuries would have achieved a better result.

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computator 6y ago

Could you explain a bit more please? If the annual interest rate was supposed to be 2.5% of the value of 1000 pieces of 3.5g gold coins, which works out to 0.025 x 1000 x 3.5 = 87.5g of gold per year, why aren't they receiving 87.5g of gold or the equivalent of $4375 a year?

URSpider94 6y ago
The loan wasn’t denominated in gold, it was denominated in guilders. At the time, guilders happened to be made of gold, but that’s somewhat irrelevant. The interest is 2.5% of the initial value of the bond in guilders, which has almost certainly deflated drastically, and will continue to do so. Put another way, the loan will continue to pay out 14 Euro per year 100 years from now, when that will likely be the cost of one can of soda.

ww520 6y ago

In other words, inflation wipes out debt. No wonder all governments issuing debt like crazy.

moonchild 6y ago
No, because interest on debt compounds and the rates are frequently higher than inflation.
- LeCow 6y ago
  Lol what. I haven't been able to buy government bonds/gilts with an coupon rate hire than inflation for years. At least my equities return when everyone deflates the value of money.

repiret 6y ago

As other responders have pointed out, the interest should be 2.5% x 1,000 Guilders, not 2.5% of the amount of gold that was in 1,000 Guilders in 1,648. Its worth going through the math: 2.5% x 1,000 Guilders = 25 Guilders. The Netherlands replaced the Guilder with the Euro in 2002, with an exchange rate of 2.20371 Guilders per Euro. If we interpret the contact as being due in Euros, then the interest should be €11.34/year, or at today's exchange rate, $13.44/year.

nly 6y ago

Really the problem is the lack of reinvestment of dividends. If they'd reinvested their 2.5% every year, in a similar bond paying 2.5%, then they'd now be collecting dividends of something like $600,000/year... absolutely crushing holding Gold. The fact that this is a perpetual bond is interesting, but rolling an investment through shorter-dated bonds paying 2.5% over the centuries would have achieved a better result.