The Forever Bond by Joe Rosenberg
Fun fact: the British government only recently finished paying for World War I. How could it possibly still have been paying for The Great War a hundred years after it ended? Because, in an early bid to raise cash for the war effort, the British government offered a rare and beautiful thing called a perpetual bond.
The way a bond typically works is that when a government or a company wants to fund something that they don’t have the cash on hand for, they ask regular individuals for a loan of X amount, and, in addition to paying back that principal amount after some fixed amount of time, they also pay you back some small amount of interest. They do that in regular payments to you over the course of anywhere between three months and 30 years. Usually after a maximum of thirty years, the bond “matures,” at which point the government has “redeemed” the bond. Meaning it’s all paid up and you and the government are now square. You’ve gotten your principal back plus interest and they are no longer in your debt.
A perpetual bond is, quite simply, a bond that never matures. Issued usually only in periods of fiscal desperation, it promises that instead of paying you back your principal in full plus interest after 30 years, instead, the government will keep the principal and instead pay you, your children and your children’s children’s children’s children a small amount of interest every year for all eternity.
The biggest problem with perpetual loans was that when it came to bonds issued by governments and companies, these types of bonds carried a lot of risk with them because governments and companies often collapse. When that happens, not only do the payments stop, but you don’t get your principal back either. Geert Rouwenhurst, professor of finance at Yale, says this happened all the time. There were bonds issued by France before the French Revolution, and by Russia before the Russian Revolution, so most perpetual bonds are now lost to history.
Not surprisingly, perpetual bonds are incredibly rare, and as such are coveted among certain “scripophiles” — people who go about collecting old stock and bond certificates. Most old bond certificates have long since matured and are therefore collected purely for their historical significance and aesthetic quality, but perpetual bonds are in a category of their own. They are unique financial instruments, ones that form a living bridge from our present to the deep financial past.
Rouwenhurst, on behalf of Yale’s Center for International Finance, actually purchased one of the oldest active bonds to date — a 1648 corporate Dutch water authority bond written on goatskin that was originally issued to raise money for the construction of a pier. Most of the oldest active perpetual bonds are from this very same Dutch water board, because this board has been in charge of maintaining all of the dams and levees and dikes in a given corner of the Netherlands for hundreds of years and is very stable. You don’t need a record of ownership to keep the bond active, but the catch is that the bearer of the bond needs to travel to the water board’s registrar’s office to have it notated, meaning a staff member at Yale needs to travel all the way to Holland to maintain it.
The Dutch water bond is now in the custody of Tim Young, a curator at Yale’s Beinecke Rare Book and Manuscript Library, who traveled back to Holland to collect on the bond in 2015. Yale first purchased the bond at an auction for $24,000, and when Young recouped the payment plus interest from the water board, his total payout came out to a whopping 136 euros plus change. Big money.