of interest
The Confederate Cotton Zombie Bonds
Confederate bonds are now prized by collectors of Confederate memorabilia. Since the bonds were never redeemed, thousands of these remnants of the South still exist for anyone to own.One of the more interesting bonds produced by the Confederacy were the Erlanger bonds which were issued in London in an attempt to raise much needed foreign currency for the Confederacy. These bonds were authorized by an Act of the Confederacy on January 29, 1863, and were the only bonds issued in foreign markets by the Confederacy. One of the more interesting aspects of these bonds is that they were Cotton Loan Bonds, backed by and redeemable in bales of cotton.
The reason for issuing Cotton Loan Bonds was that anyone who bought Confederate bonds faced the risk of default if the Confederacy lost the war. Even if the Confederate States were to survive the war, the Confederacy lacked the gold reserves requisite to back the bonds. However, the South had plenty of cotton, a commodity that was essential to the mills in England and the rest of Europe.The Cotton Loan Bonds which were backed by bales of Confederate "white gold" at a price that would provide a profit to potential buyers if the bonds were paid off in kind rather than in cash. The £100 bonds (about $485 in gold before the war) were redeemable for 8 bales (4000 pounds) of cotton. Additional bonds were issued at £250, £500 and £1000. The bonds paid 7% interest and were redeemable in 20 years.
The Erlanger bonds traded on both the London and the Amsterdam Stock Exchanges. The performance of the bonds reflected traders' faith in the Confederacy. Declines in the value of the bonds occurred as the war turned against the Confederacy, and it became more evident that the Confederacy would lose the war and be unable to redeem the bonds.A similar indicator of faith in the Confederacy is reflected in the gold premium for the Confederate Dollar. At the beginning of the war, one paper Confederate Dollar was redeemable for one dollar in gold, but as the war progressed, the premium on gold rose. As you can see in the graph below, the Confederate Dollar depreciated consistently against gold during the war. Initially, this decline was due to inflation in the Confederacy since it was funding the war primarily through paper money and through issuing bonds. Toward the end of the war, the risk of default drove the rise in the gold premium.
The United States Federal Government was adamant that it would not redeem any Confederate Bonds, State Bonds, Confederate Currency or State Currency that had been issued during the war. The Fourteenth Amendment to the Constitution was passed on July 9, 1868 and Section 4 of the Fourteenth Amendment explicitly stated that "Neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void." Confederate Bonds became Zombie Bonds. Though officially dead, speculators continued to keep them alive. Since British and French courts felt that the United States government was responsible for Confederate liabilities, despite the Fourteenth Amendment, speculators in London continued to buy the 7% Erlanger Cotton Bonds. As the graph below illustrates, the price of the bonds collapsed in 1865, and fluctuated between £3 and £8 pounds from 1865 until 1871 when the bonds stopped trading on the London Stock Exchange. Thereafter, the bonds were usually quoted around £1, except between 1879 and 1884.
The Erlanger Cotton Loan
The Erlanger Loan was issued in five European cities -- London, Liverpool, Paris, Amsterdam and Frankfurt -- on March 19, 1863 and raised £1,759,894 ($8,535,486). The bonds sold at 90% of face value, and were redeemable for Confederate government-owned cotton in the Confederacy itself. This last clause was a critical catalyst in stimulating blockade-running, because the holders of Erlanger bonds had to risk the Federal blockade to convert them into a tangible commodity.
Thomas Dudley, the U.S. consul at Liverpool who reported on Denbigh's conversion to a blockade runner, was appalled at both the brazenness of the Confederate agents there and the naivete of local merchants: "as strange as it may seem," Dudley reported to Secretary of State Seward, "these people here who are aiding the Rebels and [have] taken or purchased these bonds think if worse comes, and the Union is restored that the United States Government will assume the payment of their bonds."
But although those left holding cotton bonds at the end of the war lost their investment, the Erlanger Loan enabled the Confederacy to raise millions of dollars' credit in Europe, money that was used to build warships, purchase munitions and obtain supplies, all of which were brought into Southern ports by blockade runners like Denbigh.
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