NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The U.S. Debt Restructuring of 1933: Consequences and Lessons

Sebastian Edwards, Francis A. Longstaff, Alvaro Garcia Marin

NBER Working Paper No. 21694
Issued in November 2015
NBER Program(s):Asset Pricing, Development of the American Economy, International Finance and Macroeconomics

In 1933, the U.S. unilaterally restructured its debt by declaring that it would no longer honor the gold clause in Treasury securities. We study the effects of the abrogation of the gold clause on sovereign debt markets, the Treasury's ability to issue new debt, investors' willingness to hold Treasury bonds, and on the Treasury's borrowing costs. We find that the restructuring was followed by a flight to quality in the sovereign market. Despite this, there was little effect on the Treasury's ability to sell new debt or the willingness of investors to roll over restructured debt. The Treasury incurred a marginally higher cost of capital by issuing new bonds without the gold clause.

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Document Object Identifier (DOI): 10.3386/w21694

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