When a Nation's Debt Becomes an Investment

In a Place for All Merchants

In 1531, a permanent bourse was established in Antwerp. It is said that the dedication inscribed upon it expressed the sentiment that it was for merchants of all nations and all languages. In this city, which by the mid-16th century had become one of the largest north of the Alps, people traded goods and bills of exchange. And one other thing: public bonds. Even the rates for loans to monarchs were decided within this building.

However, shares were not traded here. The concept of the joint-stock company would not emerge until later, in 1602.

The Finances of Splendour

Public bonds were also part of the king's purse. King Francis I of France built or renovated seven châteaux in the space of about fifteen years. Around 1528, the medieval hunting lodge at Fontainebleau began its transformation into a Renaissance palace, and painters were invited from Italy. Leonardo da Vinci was also invited, and one of his paintings made its way to this country.

The king's emblem, the salamander, was carved into the walls, its splendour telling of astonishing wealth. Yet, this wealth was financed by public bonds, alongside taxes and the sale of offices. This brilliant culture was, at its foundation, supported by the burden on the common people.

A Promise Not to Be Broken

Why did national debt become an object of trade? It was because the very mechanism of debt had changed. In the past, debt was incurred by the king as an individual, and it was sometimes defaulted on. However, the situation changed completely when parliaments began to guarantee repayment.

Public bonds, which are certificates for the government to borrow widely from the private sector, represent a national debt whose repayment is promised. It was this institutionalized promise that transformed national debt into an object of investment and lowered interest rates. From the perspective of monetary history, this marks a major turning point.

Towards a System for Consolidating Credit

The system of public bonds would eventually influence the nature of banking as well. In Portugal, the issuance of banknotes was gradually consolidated into a single bank: the Bank of Portugal. This bank was established by royal charter on November 19, 1846. It was born from the merger of the Bank of Lisbon and a company that specialized in underwriting public bonds.

When multiple banks issue banknotes, the recipient must verify the credit of the issuer each time. Unifying the issuance meant unifying credit. The Bank of Portugal would not gain a monopoly on banknote issuance until a decree on July 9, 1891, after a period of sharing this function with other banks.