Hamilton’s Menu Approach to Debt Resolution: Implications for Modern Sovereign Debt Relief
17 Pages Posted: 23 Jul 2011
Date Written: July 22, 2011
Alexander Hamilton proposed a debt conversion plan for the United States in 1790 that allowed different creditors to choose from a list of different (reduced) repayment options. This plan was not, however, adopted by Congress, which instead opted for a one-size fits all scheme. Modern economic models demonstrate that the “menu” approach leads to a lower cost of debt reduction for the borrowing nation than offering one type of debt conversion for all creditors. This aspect of Hamilton’s plan has not been evaluated in light of modern theory, and the episode contains lessons for sovereign countries currently seeking debt relief.
Keywords: Debt Crises, Financial Crises, Economic History
JEL Classification: G02, G15, N2
Suggested Citation: Suggested Citation