Happy 400th birthday to the world’s oldest bond
A 400-year-old Dutch water board bond, still paying a small annual sum, prompts a look at how perpetual bonds work and how inflation has quietly erased most of their real burden. Commenters unpack the original terms (including changing interest rates and redemption rights), compare historical hard-money systems to modern fiat currencies, and debate who gains or loses from long-term inflation. The thread branches into related issues such as why true perpetuities and bearer instruments have largely vanished, how accounting rules shape instruments like coupons and gift cards, and why long-duration promises are so hard to value across centuries of political and economic change.
Bond terms, interest rate, and “perpetual” nature
- Commenters dissect the original Dutch text: it grants a “heritable annuity” of 75 Carolus guilders per year on a principal of 1,200 guilders (6.25%).
- The issuer can extinguish the annuity at any time by repaying the 1,200-guilder principal in one lump sum.
- Later history (per Wikipedia and the article) shows rate reductions (e.g., to 2.5%), so “in perpetuity” applies to the obligation, not a fixed rate.
- Some note that the article may conflate different similar bonds (e.g., Yale’s 1648 bond with different terms).
Currency conversion and why it wasn’t redeemed
- Discussion on how to map Carolus guilders to euros:
- One line traces historical guilder → modern guilder → euro.
- Another looks at collectible coin prices vs metal content.
- At today’s cited payment (~€13.61/year), the principal would be roughly €500–600.
- People speculate the issuer never redeemed it because: the amount is trivial, many coupons went uncollected for decades, and its value as a historical curiosity now outweighs the cost.
Inflation, real value, and intergenerational effects
- Several note that inflation effectively eroded the real burden on the issuer; the bond is now almost symbolic.
- Debate over whether inflation “hurts the current generation” or can benefit borrowers and hurt lenders, especially with fixed-rate debt.
- Long thread on wages lagging inflation, personal vs official inflation rates, and how housing and mortgages can make some generations (e.g., property owners) big winners.
- Others stress that interest rates already embed inflation expectations, and that properly reinvested coupons could make the bond a decent historical investment.
Perpetual bonds, accounting, and regulation
- Perpetuals are said to be rare now due to legal, accounting, and regulatory headaches (e.g., perpetual liabilities, LEI requirements).
- Comparison with UK consols, gift cards, coupons, and other long-lived liabilities; breakage and expiry are used to avoid infinite bookkeeping.
- One view: credit markets and instruments like these were crucial to the economic development that made such 400‑year infrastructure projects possible.
Thought experiments and side topics
- Multiple back-of-the-envelope calculations for 400-year compounding at 3–4% show astronomical sums, used to illustrate the power of compounding and how extreme long horizons are.
- Skepticism that any realistic, safe asset could have been continuously held for 400 years.
- Mentions of crypto as a de facto return of bearer-style instruments.