Britain’s Debt Restructuring, 1717-22
Britain’s Debt Restructuring, 1717-22 was written by François Velde in 2025. It was published as part of the National Bureau of Economic Research working paper series.
The author follows the debt restructuring policies that caused the South Sea Bubble and that followed its collapse. There were two phases to debt restructuring, in 1719 and 1720.
- The former involved recasting redeemable public debt that carried interest greater than 5% (the market rate at the time). The buy-outs were financed by the monied companies: East India Company, Bank of England, South Sea Company, etc.
- The latter involved exchanging all public debt (redeemable and irredeemable) with the South Sea Company for 5% annuities. These furthermore automatically convert to redeemable 4% annuities on a fixed schedule. The company then converted their purchased debt to either cash or stock options, and besides that sold stock at market rates (with the expectation that stock values would inflate). This was done in phases ("subscriptions") with differential terms.
There were calls for the government to provide relief to the company, to keep it afloat. There were also calls to intervene on behalf of the subscribers who had already paid in, but had not yet been issued their stocks; they had effectively been sold a faulty investment. The government did offer temporary relief (postponing a principal payment by a year), and furthermore reduced annuities owed. There was also some support for the 1st phase of subscribers (who had purchased at the least inflated value). Generally though, creditors had to pursue their claims privately.
By following the money, the author determines that the British finance market of 1722 squarely favored taxpayers over creditors, and also treated creditors unequally.