Hungarian Bond Story

Bruce Krasting's picture
I was rummaging through some old stuff and found this:

Here is a close up of the legend:

As you can see this is a $500 Hungarian bearer bond issued in 1924. It
is worn, but still pretty. This is how they printed money back then. They
issued bonds. Sound familiar?

A bit of history. My father bought these and hundreds of others like it
after WWII in Zurich, Switzerland. Czech, Polish, Yugoslav and
Hungarian bonds. The pile was six inches high. They stayed in a closet
until I got them in 1980. Years later, with the help of the Foreign
Bondholders Protection Agency I was able to peddle the pile for a few
pennies on the dollar. I kept this bond as a reminder.

There is a stamped legend on the front of the bond that says it was
restructured in 1937. At that time the principal was rolled over to
1979. The interest rate was reduced to 4.5% from 7.5%. A forty-year
extension of the principal, the yield was cut in half. A lousy deal for
the bondholders.

Attached to a bearer bond are coupons which one clipped and sent to a
bank for collection. The following is a picture of the remaining
coupons. Presumably the August 1941 payment was made. But no effort was
made to collect on the February 1942 coupon. Not hard to imagine why.

Fifty years later the $500 of principal and the $1,250 of accrued
interest were worth $40.

In 1924 Hungary was a prosperous nation and could issue debt because
people believed it would be paid back on a timely basis and in the
meantime it was a “store of wealth”. Banks were suspect, but a
sovereign credit was as good as gold. And this store of wealth could be
transported across borders.

Things changed in the first 13 years in ways that could not be
anticipated. An effort was made to formally restructure what were
un-payable debts. The evidence is that partial interest continued for
another five years and then it was worth nothing.

There are very few similarities to the Hungary of 1924/37/42 and
Hungary/PIIGS/etc. of today. First and foremost there are no attractive
looking, negotiable bearer bonds. But electronics has made the debts
more mobile then ever. There is no war in Europe to destroy the value of
a debt. Today there is just too much debt. That alone will destroy its

The observation is that many countries defaulted over the years. Every
country south of Texas went bust in the 80’s. Each time the bondholders
got whacked. Some debts just got rescheduled at a lower rate. Some paid
nothing at all. The difference between 1945 in Europe and the problem
countries in the EU today is that the numbers are so crazily large. The
deflationary implications of restructuring a few trillion in debt are
difficult to fathom. But history does have a way of repeating itself.

Another takeaway from a review of this bond is that it was backed by
gold. Of course there was no gold. Only ink that said there was. And
today we are still talking about this very same subject. Ink is not
gold. Amazing how little things change.


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LetUsHavePeace's picture

Hungary in 1924 was anything but "a prosperous nation".  It was the rump part of the broken-up Austro-Hungarian Empire, and like Germany and Austria it had gone through a ruinous hyperinflation after World War I.  Mr. Krasting is right that "people believed (the bond) would be paid back on a timely basis and in the meantime it was a “store of wealth” but their confidence was based on the assumption that the full faith and credit of the United States was behind the bond.  That was what allowed it to be issued in New York as part of the Dawes Plan rescue of Europe.  As a standalone "sovereign credit" Hungary was hardly "as good as gold"; its gold supply had been effectively swallowed by the victorious Allies as part of the reparations settlement.  The gold that backed this Hungarian bond and the other foreign bonds, including those from supposed winners of WW I - France, Britain, and Italy, floated in New York in the 1920s was already held in New York at the Federal Reserve Bank.  The reduction in the payment of interest on the bonds was the result of the United States' devaluation in 1932 by Franklin Roosevelt's executive order; the dollar was no longer exchangeable into gold and all "gold" bonds had their dollar payouts adjusted to the new gold price.  When Germany and Austria declared war on the United States, their reserve balances - including the gold originally pledged as security for the bonds - were immediately confiscated.  

Captain Willard's picture

"Every country south of Texas went bust in the 80's..."

Texas went bust too, Bruce. Remember First City, Texas Commerce Bank, etc... All tits up.....

This time, it'll be the Hungarian solution.

Thanks Bruce.

kaiten's picture

Not many people know that the worst hyperinflation in history was not Weimar Germany in 1920s or Zimbabwe two years ago, but post WWII Hungary when DAILY inflation was over 200%.

Tapeworm's picture

Bruce, good interest stuff and writing as usual for you.

 Whatever you do do not throw away the fiat paper bonds and notes. There is a pretty good sized paying audience for that stuff. See scripophilia for buyers of pretty and worthless paper. If you still have the stuff I will put you in touch with a very honest broker/buyer of same. Heck, I will buy some of it if I get a reasonable offer of equality for both of us.

 I will get you a link for the true gentleman that will help you in a real valuation.

brushfire's picture

great post bruce, a little perspective is always welcome.

Oh regional Indian's picture

Awesome article and the pictures of the bond and coup-ons, priceless.

The verysimilitudinous times we live in.

I saw history rhyming as I read your post.


Burnbright's picture


Something very interesting that I do not believe has ever been talked about is coinage. I think it is relevant to your topic as it has correlations to the Era and debt default. I haven't done a lot of research on this issue because I do not have the time or the resources to find out the necessary information. However after purchasing a bunch of old European coins that I thought might be silver I had to find out what the coins content were and their was a striking similarity between the issue dates and when valuable metal content was substituted almost all over the world. A majority of coins pre 1900 were either silver or gold. Between 1910-1930's a majority of countries striped the metal content of their coins. I believe the US was one of the last countries to remove PM's from coinage as well as Canada. I don't know of any countries that currently issue PM's as currency but what I don't know could fill a book.


wintermute's picture

Burnbright - fantastic observation.

Basically the reduction of silver content in coinage is a good proxy for the rate of demise of a given fiat currency.

I recall that even in remote New Zealand the last commonly circulated silver coins were the 1930's three-pence (I am ignoring collector proof mintages). I also recall in the 1960's being amazed at a German WW2 coin which was iron, conspicuous by being magnetic. In the last decade in the UK we have become acquainted with steel coinage - which can be an annoyance adhering to magnetic clips.  Not as big an annoyance as the parallel debasement and fall of the value of sterling currency. 

The silver -> nickel/bronze -> steel progression reveals a government's own lowering level of confidence in its own currency.

The link is an excellent article on how the destruction of the roman empire can be tracked though the demise of its currency - which had a 95% silver content in Augustus' time falling to nothing 400 years later.

Another spooky parallel is the increasing nationalisation of larger and larger parts of the economy. (consider: 90% of the US mortgage market is government run today) but that is a separate story...


GoldBricker's picture

You need to get one of those World Coins guides. It's a big green book that looks like a city telephone book.

Europeans kept silver in their coinage until fairly late. The last year for France, for example, was 1969. (These old French pieces are our local equivalent of pre-1965 US coins for silver hoarding, BTW.) As for gold, Switzerland made gold 20-france pieces (the series 1897-1949 are called 'Vrenelis') until 1949 (10 million minted that year). I'm not sure how much they circulated, however; I've never seen a Vrenelis that looked circulated. 

European gold coinage, however, basically ended with the onset of WWI. Silver's exit was pretty closely timed with the collapse of the Bretton Woods arrangement.

Burnbright's picture

Thanks for the tip, I didn't know there was such a thing.

fasTTcar's picture

I have a 100,000 Deutchmark bond with all of its 2000 mark coupons attached from 1922 hanging on the wall in my office.  1922 was a tough year for Germany, I am told.

It hangs next to the 25 billion note and the 100 Trillion note from Zimbabwe both issued in 2008.

I expect to have a Euro, Pound and US dollar or bond hanging next to them as time goes on.

I do not expect to be framing any silver, gold, copper or nickel coins.




Tapeworm's picture


Nice collection, but you need a one sextillion Pengo note from Hungary to add to your wall.

This is good for a comment on why Hungary and the Baltic States are still going to try hard to make their commitments to the Euro and Maastricht.

 The back ground on why is most interesting.

 The best to you and your wall.

littlebear's picture

thank you for posting such vivid narrative

Alienated Serf's picture

hmm, what happened last time multiple European nations went through serial default...

keep the good work coming bruce. 

Mad Max's picture

Very interesting story.

It's hard not to read the last line of the photo "sinking fund gold bonds" and think instead of "Gold Bond Medicated Powder."

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DoChenRollingBearing's picture

Very interesting story Bruce.  You write on a great variety of interesting topics.  Keep it up