Securitization of Sovereign Debt: Corporations as a Sovereign Debt Restructuring Mechanism in Britain, 1694-1750

Abstract

This paper shows how Britain used privileged corporations to simultaneously securitize and restructure sovereign debt. Combining the sale of privileges with securitization allowed for multi-party acceptance of sovereign debt restructuring in an early emerging-market country. As a result, the Bank of England, the South Sea Company, and the East India Company came to hold 80 percent of the British national debt by 1720. After 1720, Britain dismantled securitization and moved debt to a standard bond market.

Keywords: securitization, sovereign debt restructuring, liquidity, Bank of England

JEL Classification: N23, H63, G3, G1