Sovereign Debt Repayment in Shit

While we worry about the U.S. inflating away its debts, that wouldn’t be so bad, historically speaking. Back in the late 19th century Peru was repaying its debt obligation in guano proceeds — shit in short. Mind you, its shit was high quality and in real demand, unlike our shit.

Here is an excerpt from a new paper:

Peru’s experience with sovereign debt during the guano boom is one of the most remarkable in the nineteenth century. Despite the country’s ongoing political instability and poor capital market reputation, the price of Peruvian bonds soared shortly after settlement in 1849, and the country enjoyed relatively low credit risk until the 1870s. The paper discusses the incentives Peru and its creditors faced, and explains how Peru’s extraordinary performance was founded on its credible commitment to service its debt with the guano proceeds.

If you can repay debt in shit then you can repay it in anything. Words to live by.

Source:

Vizcarra, C. Guano, Credible Commitments, and Sovereign Debt Repayment in Nineteenth-Century Peru. The Journal of Economic History 69, 358-387(2009).

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