Working Paper: NBER ID: w10960
Authors: Marc D. Weidenmier
Abstract: Many states that formed the Southern Confederacy defaulted on sovereign debt sold in international capital markets during the 1840s. The Confederacy also elected President Jefferson Davis, who openly advocated the repudiation of U.S. states' debts while a member of Congress. Despite its poor credit record, the Confederate government managed to float cotton bonds in England that constituted under two percent of its expenditures. The bonds were largely issued to settle overdue debts with gun contractors who had cut off trade credit. The South serviced the bonds as late as March 1865, a time of domestic hyperinflation and weeks before the fall of Richmond. Although the Confederate experience shows that trade sanctions can promote debt repayment, the gunboat model can only account for a small amount of lending. A reputation or another type of sanction would be necessary to support higher levels of lending in international capital markets.
Keywords: Sovereign Debt; Reputation; Gunboat Sanctions; Confederacy
JEL Codes: F34; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| threat of sanctions (gunboat sanctions) (F51) | servicing of cotton bonds (L67) |
| servicing of cotton bonds (L67) | Confederacy's default (G33) |
| reputation (M14) | ability to service debts (F34) |
| gunboat sanctions (F51) | higher levels of lending (G21) |
| poor reputation (Y70) | default on debts (G33) |