The past mirror: notes, surveys, debates

The road to the 1980s write-downs of sovereign debt

Edwin M. Truman

Pages 281-299

DOI: https://doi.org/10.1017/S0968565021000196

The Latin American debt crisis consumed the 1980s and was not restricted to Latin America. Starting from the August 1982 Mexican weekend, the crisis had three phases: Concerted Lending (1982-5), Baker Plan (1985-9) and Brady Plan (1989 to mid 1990s). This article describes the evolution of the debt strategy and the road to embracing debt write-downs at the end of the decade. In the absence of an external coordinating mechanism, four groups of parties had to reach agreement on any change in the strategy: the borrowing countries, their commercial bank lenders, the home-country authorities of those lenders, and the International Monetary Fund as the principal international institution. Each group could effectively veto any change in the strategy. This need for consensus is lesson number one from the 1980s for today. Lesson number two is that political economy aspects dictated that the strategy be implemented on a case-by-case basis. The article concludes with an application of these lessons to a similar, but even more global, potential debt crisis in the wake of the COVID pandemic.

Articles

Pandemic recession and helicopter money: Venice, 1629–1631

Donato Masciandaro, Charles Goodhart, Stefano Ugolini

Pages 300-318

DOI: https://doi.org/10.1017/S0968565021000214

We analyse the money-financed fiscal stimulus implemented in Venice during the famine and plague of 1629–31, which was equivalent to a ‘net-worth helicopter money’ strategy – a monetary expansion generating losses to the issuer. We argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed. This episode highlights the redistributive implications of the design of macroeconomic policies and the role of political economy factors in determining such designs.

The role of pawnshops in risk coping in early twentieth-century Japan

Tatsuki Inoue

Pages 319-343

DOI: https://doi.org/10.1017/S0968565021000111

This study examines the role of pawnshops as a risk-coping device in Japan in the early twentieth century, when the poor were very vulnerable to unexpected shocks such as illness. In contrast to European countries, Japanese pawnshops were the primary financial institution for low-income people up to the 1920s. Using data on pawnshop loans for more than 250 municipalities and exploiting the 1918–20 influenza pandemic as a natural experiment, we find that the adverse health shock increased the total amount of loans from pawnshops. This is because those who regularly relied on pawnshops borrowed more money from them than usual, and not because the number of people who used pawnshops increased. Our estimation results indicate that pawnshop loan amounts increased by approximately 7–10 percent due to the pandemic. These findings suggest that pawnshop loans were widely used as a risk-coping strategy.

Resource endowments and the problem of small change: insights from two American mints, 1600–1700

Jane E. Knodell, Catalina M. Vizcarra

Pages 344-363

DOI: https://doi.org/10.1017/S0968565021000159

This article discusses historical evidence from the Potosi mint and Massachusetts Bay mint that illustrates the importance of the resource endowment (in this case silver) for the provision of small change. We show that the availability of silver was fundamental in shaping incentives. The relative scarcity of silver in Massachusetts Bay contributed to the small scale of the mint's operations, and implied that neither the monetary authority nor the mintmaster faced a significant tradeoff between drawing seigniorage from the mint and the production of small-denomination coins. In contrast, in the Viceroyalty of Peru, the abundance of silver, and the consequent large level of production of the mint's heavy peso coin, heightened the tradeoff between the fiscal and monetary objectives of the coinage. We suggest that these incentives negatively affected the production of fractionary coinage in the Peruvian viceroyalty, whereas in Massachusetts Bay the production of small-denomination coins was the norm.

Silver coins, wooden tallies and parchment rolls in Henry III's Exchequer

Richard Cassidy

Pages 364-382

DOI: https://doi.org/10.1017/S0968565021000184

In the mid thirteenth century, England used only a single coin, the silver penny. The flow of coins into and out of the government's treasury was recorded in the rolls of the Exchequer of Receipt. These receipt and issue rolls have been largely ignored, compared to the pipe rolls, which were records of audit. Some more obscure records, the memoranda of issue, help to show how the daily operations of government finance worked, when cash was the only medium available. They indicate something surprising: the receipt and issue rolls do not necessarily record transactions which took place during the periods they nominally cover. They also show that the Exchequer was experimenting with other forms of payment, using tally sticks, several decades earlier than was previously known. The rolls and the tallies indicate that the objectives of the Exchequer were not, as we would now expect, concerned with balancing income and expenditure, drawing up a budget, or even recording cash flows within a particular year. These concepts were as yet unknown. Instead, the Exchequer's aim was to ensure the accountability of officials, its own and those in other branches of government, by allocating financial responsibility to individuals rather than institutions.