In early 1624, a devastating event took place in the Netherlands: drifting ice on the River Lek caused a dam to break on the outskirts of Utrecht. This incident not only overflowed the river’s waters, but also threatened the security of the region, including the city of Amsterdam. In a country where a third of its territory is below sea level, the breakage of the dam meant imminent danger and a monumental economic challenge for the European country.
The flooding forced the local community to act quickly. After intense work, the inhabitants managed to contain the waters. However, rebuilding the damaged dam required significant investment, which would be difficult to cover without a robust financial system. Fortunately, the Dutch had already established a dynamic and sophisticated bond market which allowed them to raise funds quickly, according to a recent Financial Times publication.
Financing of repairs and the perpetual bond
The local water authority, known as Hoogheemraadschap Lekdijk Bovendams, issued more than 50 bonds, raising approximately 23,000 Carolus guilders to finance the repairs. Of all these bonds, only one has survived to this day: a bond of 1,200 florins sold on December 10, 1624 to a wealthy woman from Amsterdam, Elsken Jorisdochter. This bond has not only survived 400 years, but it also continues to earn interest, with a return of 2.5% in perpetuity. A figure that is due to the effects of 394 years of inflation and currency changes (as of 2018), the bond only pays around 15 euros ($16; £13) a year.
Interestingly, this bond, which now belongs to the New York Stock Exchange, was the subject of a recent celebration for its 400th anniversary. The Stock Exchange received the payment of 299.42 pounds in interest, 362.61 euros at the exchange ratewhich marks a milestone in financial history. This event not only honors the perpetuity of the bond, but also remembers the evolution of the fixed income markets that have sustained the global economy over the centuries, as detailed by FT.
The economic legacy of bonds
Bonds have played a crucial role in economic history, from financing wars to supporting hospitals and businesses. Throughout history, its influence has been undeniable, and More than half of global debt is in the form of bonds, which underlines its importance in the fabric of the modern financial system. The New York Stock Exchange, which has seen its influence grow in the financial world, has become the custodian of this unique bond, whose impact is felt far beyond its modest interests, the financial media adds.
The original bond was signed in a building now part of Utrecht University, where the anniversary was recently celebrated. This act symbolizes the continuity of a legacy that has endured through numerous political, economic and social changes in the Netherlands. The Stichtse Rijnlande Hoogheemraadschapn, the modern successor to the authority that issued the bond, still manages some of these historic documents, including the oldest one still in effect.
The bond, which was purchased by the Dutch-American banker Albert Andriesse at auction, has come a long way. Andriesse lo donated to the New York Stock Exchange in 1938 in a gesture of friendship, coinciding with the founding of New Amsterdam, today known as New York.
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