6 ms·

I wonder what the process is for paying back the Nominal. Surely Pound Sterlings in 1720 had an entirely different value than today (as has pretty much every ot

by rsp1984 12y ago

I wonder what the process is for paying back the Nominal. Surely Pound Sterlings in 1720 had an entirely different value than today (as has pretty much every other currency, in case Pounds was not the currency for this particular debt).

throwaway183839 12y ago
Sure, pounds sterling had a different value in 1720 (although the question arises - a different value in comparison to what? The US dollar and the Euro didn't exist in 1720! You could take a set quantity of gold as your comparison, but the value of an oz of gold has fluctuated more than the value of a pound sterling over the same period). However, it is all a bit immaterial. If the debt was denominated in pounds sterling, then it will be repaid in pounds sterling. If it was in guilders, then it will be repaid in guilders (or in sterling, at whatever the current nominal sterling/guilder exchange rate is).
- dredmorbius 12y ago
  The question of how to compare prices over time is an interesting one in economics. There are a few answers which have been arrived at. There's Angus Maddison's history of GDPs dating to the year 1. Gregory Clark of UC Davis has compiled a price history of England dating from 1209 to 1914: http://www.econ.ucdavis.edu/faculty/gclark/papers/Agprice.pdf http://www.econ.ucdavis.edu/faculty/gclark/papers/Agprice.pd... Generally, there are commodities with fairly well-established prices and costs, including food and energy. In particular, food as a share of average wages is a reasonable proxy over time. Another argument is that money should ultimately be considered to be backed in energy units, an idea I've traced to H.G. Wells and a 1914 short story. It appears subsequently in Arthur C. Clarke, R. Buckminster Fuller, and Kim Stanley Robinson's writings. Clarke was quite the fan of Wells.
- mohanmcgeek 12y ago
  >The value of an oz of gold has fluctuated. Compared to what? Other goods. So, value of pounds is determined by its purchasing power
rtpg 12y ago
Debts are usually denominated in a currency, so if the nominal was 100 pounds, even if that used to be worth 100 times more before, that's what the government needs to pay.
- bbcbasic 12y ago
  100 pounds (lb) of silver?
  - rtpg 12y ago
    I think it used to be pretty common to use metals instead of currencies to denote debts, for reasons mentioned in this thread. I have a friend who once lent me money in one currency, but denoted the debt in "in X Euro or (X Euro in Yen at lend date), whichever is worth more", which I'm pretty sure is the best way to deal with inflation problems as a lender.
    - nl 12y ago
      Currency exchange rates are not the same as (or even very closely correlated in the medium term to) inflation.
    - bostonpete 12y ago
      > which I'm pretty sure is the best way to deal with inflation problems as a lender Why stop at 2 currencies? Why not specify the debt in a large number of currencies that take the value at whichever is ultimately worth more? Of course this sort of hedging is good for the lender but it would be horrible for the borrower. I guess if you were desperate for the loan (or he was giving a really favorable rate) it's probably worth it, but I've never heard of a lender trying to hedge exchange rates in this way. But then again maybe I'm unaware of some of the games people have to play with other currencies since I mostly only have to deal with the dollar.
      - eru 12y ago
        You could denote your loan in Singaporean Dollar. Their central bank pegs the SGD to a basket of currencies, effectively giving you a similar hedge.
omh 12y ago
Yes, they'll only get the nominal amount back. Although there has been a huge amount of inflation since then you'd expect that the interest payments have more than made up for this.
toyg 12y ago
Pound Sterling didn't evolve in a vacuum -- there are acts of Parliament regulating exchange rates with previous denominations; I expect they will be used, and have likely been used to pay out compounded interest until today, i.e. when the last Sterling reorganization happened (in the 70s? I can't remember), these debts were likely recalculated. It's not like the Bank of England is still issuing XVIII-century Pound Sterling just to pay interest on something. One thing the United Kingdom of Great Britain really excels at, is continuity of government. It would be much more difficult for, say, Germany or France to deal with debts from 1720, considering they went through several revolutions and dissolutions and likely defaulted or simply ignored previous obligations at various points.

by rsp1984 12y ago

throwaway183839 12y ago

Sure, pounds sterling had a different value in 1720 (although the question arises - a different value in comparison to what? The US dollar and the Euro didn't exist in 1720! You could take a set quantity of gold as your comparison, but the value of an oz of gold has fluctuated more than the value of a pound sterling over the same period). However, it is all a bit immaterial. If the debt was denominated in pounds sterling, then it will be repaid in pounds sterling. If it was in guilders, then it will be repaid in guilders (or in sterling, at whatever the current nominal sterling/guilder exchange rate is).

dredmorbius 12y ago
The question of how to compare prices over time is an interesting one in economics. There are a few answers which have been arrived at. There's Angus Maddison's history of GDPs dating to the year 1. Gregory Clark of UC Davis has compiled a price history of England dating from 1209 to 1914: http://www.econ.ucdavis.edu/faculty/gclark/papers/Agprice.pdf http://www.econ.ucdavis.edu/faculty/gclark/papers/Agprice.pd... Generally, there are commodities with fairly well-established prices and costs, including food and energy. In particular, food as a share of average wages is a reasonable proxy over time. Another argument is that money should ultimately be considered to be backed in energy units, an idea I've traced to H.G. Wells and a 1914 short story. It appears subsequently in Arthur C. Clarke, R. Buckminster Fuller, and Kim Stanley Robinson's writings. Clarke was quite the fan of Wells.
mohanmcgeek 12y ago
>The value of an oz of gold has fluctuated. Compared to what? Other goods. So, value of pounds is determined by its purchasing power

rtpg 12y ago

Debts are usually denominated in a currency, so if the nominal was 100 pounds, even if that used to be worth 100 times more before, that's what the government needs to pay.

bbcbasic 12y ago
100 pounds (lb) of silver?
- rtpg 12y ago
  I think it used to be pretty common to use metals instead of currencies to denote debts, for reasons mentioned in this thread. I have a friend who once lent me money in one currency, but denoted the debt in "in X Euro or (X Euro in Yen at lend date), whichever is worth more", which I'm pretty sure is the best way to deal with inflation problems as a lender.
  - nl 12y ago
    Currency exchange rates are not the same as (or even very closely correlated in the medium term to) inflation.
  - bostonpete 12y ago
    > which I'm pretty sure is the best way to deal with inflation problems as a lender Why stop at 2 currencies? Why not specify the debt in a large number of currencies that take the value at whichever is ultimately worth more? Of course this sort of hedging is good for the lender but it would be horrible for the borrower. I guess if you were desperate for the loan (or he was giving a really favorable rate) it's probably worth it, but I've never heard of a lender trying to hedge exchange rates in this way. But then again maybe I'm unaware of some of the games people have to play with other currencies since I mostly only have to deal with the dollar.
    - eru 12y ago
      You could denote your loan in Singaporean Dollar. Their central bank pegs the SGD to a basket of currencies, effectively giving you a similar hedge.

omh 12y ago

Yes, they'll only get the nominal amount back. Although there has been a huge amount of inflation since then you'd expect that the interest payments have more than made up for this.

toyg 12y ago

Pound Sterling didn't evolve in a vacuum -- there are acts of Parliament regulating exchange rates with previous denominations; I expect they will be used, and have likely been used to pay out compounded interest until today, i.e. when the last Sterling reorganization happened (in the 70s? I can't remember), these debts were likely recalculated. It's not like the Bank of England is still issuing XVIII-century Pound Sterling just to pay interest on something. One thing the United Kingdom of Great Britain really excels at, is continuity of government. It would be much more difficult for, say, Germany or France to deal with debts from 1720, considering they went through several revolutions and dissolutions and likely defaulted or simply ignored previous obligations at various points.