Bonds issued by the Finnish government in 1862–1890
Suffering from scant capital and undeveloped credit arrangements, the Finnish government brought a substantial amount of capital to the country in the 19th century by issuing foreign bonds, which significantly expedited Finland’s economic development. In practice, taking out sovereign debt from abroad became possible when Finland gained its own currency, the Finnish mark, in 1860. It was bound to the silver standard in 1865 and, at the same time, released from its ties to the Russian rouble, becoming an independent currency.
Towards the end of the 19th century, particularly large traffic-related investments required capital, in the acquisition of which the government played a central role. The government funded the construction of the railway system almost entirely with foreign loans. To support the developing economy, the government created a predictable environment, a functional and progressively developing transport infrastructure, and a solid framework that enabled the meaningful cultivation of business activity. Gaining capital also accelerated the development of bank operations in Finland, which contributed to increasing financial activity and investments.
Borrowing from abroad not only provided financial resources but Finland also benefited by integrating itself into the financial markets of Western Europe, becoming known as an independent actor in the international community. In the final decades of the 19th century, Finland’s reputation in the international financial markets was good, which is reflected by the relatively favourable terms of the bond loans. The economic ties, first mainly with Germany and later with France and the United Kingdom, highlighted the Grand Duchy of Finland’s international status as an autonomous part of the Russian Empire.
The bonds issued by the Finnish government were tangible indicators of the country's governmental development from the peripheral region of a larger nation to a subjective actor in the international community. Alongside to their role in supporting international integration, the bonds serve as reminders of a key phase of internal integration at the end of the 19th century: on the one hand, the flows of money, goods and raw materials joined parts of the country together and, on the other hand, the government’s investments to accelerate economic growth indirectly created capabilities for completing a variety of projects related to social and education policies, for example.
Before the transition to the book-entry system, bonds and other securities were paper documents. Securities were normally printed in colour on high-quality paper, and they often featured visually impressive embellishments and security patterns. The bonds were numbered and set to be repaid in accordance with the amortisation plan printed on them. The text on the bond mentioned at least the following: 1) the series and the bond’s running number (there was variation in the nominal values of the series), 2) the name of the party taking out the bond loan, 3) the interest rate of the bond, 4) the total amount and currency/currencies of the bond loan, 6) the date and place of the bond amortisation lottery and interest payment, and 7) the signature of the debtor.
From the perspective of investors, government bonds were appealing due to their interest yields and because they were regarded as a relatively safe investment. The interest was calculated according to the bond’s nominal value and usually paid every six months. For each bond, there was a coupon sheet consisting of a talon and coupons – one coupon for every interest payment date. The coupon listed the bond number, interest rate, the nominal value of the coupon, the due date and the redemption locations.
The loan repayments were made by selecting bonds through a lottery in accordance with the schedule specified in the amortisation plan. In practice, the lottery involved placing a lottery ticket corresponding to each outstanding bond in a rotating lottery drum, from which a government official drew the appropriate number of tickets for the amortisation date in question. In other words, redemption was not coupon-specific. Instead, the drawn obligation was redeemed all at once, which also stopped interest accumulation for every coupon of that bond. From the perspective of the aftermarket, the system was challenging, at least in theory, since the holder of a bond could never know when the bond and its coupon would go up for redemption. However, at the end of the 19th century, bonds were rarely held by households, and the randomness resulting from the lottery scarcely mattered either way to the major institutional or other investors that held large numbers of bonds.
Text: Antti Santaholma
Photos: Marco Melander
Exhibits
Sources:
Kuusterä, Antti: Valtion sijoitustoiminta pääomamarkkinoiden murroksessa 1859–1913. Suomen Historiallinen Seura. Historiallisia tutkimuksia 149. Helsinki 1989.
Mäkitie, Ilkka: Valtion obligaatiopaperit 1840–1917. Julkaisussa Numismaatikko 1/2022, s. 4–11.