The world’s first global safe asset: British public debt, 1718-1913

Abstract

This study assesses whether British public debt featured a convenience yield during the Classical Gold Standard before World War I, as the US does in modern times. The empirical results support this thesis. Increases in the British debt-to-GDP ratio decreased the convenience yield on British public debt by between 8 and 20 basis points, qualitatively similar to the behavior of US public debt yields post-1926. Interestingly, the relationship between US yields and US public debt during the Classical Gold Standard counters previous findings for modern US times. The international public debt yield spreads between other Gold Standard core countries and Britain were consistently positive and averaged 55 basis points, even though currency and sovereign risk were negligible at that time for the chosen countries.