THE SOUTH AFRICAN NATIONAL DEBT, 



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traded to meet thorn ; but there is nothing wrong in this, and the 

 policy of repayment keeps the value of stocks from falling' much 

 below par, and enhances the credit of the borrowing- Government. 



Most of the earl)- loans were provided with a definite sinking 

 fund, for the use v\ that particular loan — commonly 1 per cent. 

 With the improvement in credit, this plan was dropped, and a 

 general sinking fund instituted instead, and sometimes this too 

 has been dropped. It is now unnecessary for the security of 

 lender-, as they accept unreservedly the Government's promise 

 to repay at a tixed date. But for the sake of the Colony itself it 

 is most desirable to carry out a definite policy of repayment. 

 This is dealt with further below. 



The problem of continuing or converting old loans when 

 they become redeemable is one that Colonial treasurers have had 

 to meet before now, and which will recur continually. Up to 

 the present such conversions have been accomplished with a 

 saving of interest, as the credit of the Colonies has improved. 

 Thus all the early six per cent, and nearly all of the rive per cent, 

 loans have been wiped out. Mostly the Government has not 

 waited till the loan has become due to convert it. In some cases 

 there was an option to redeem at an earlier date; in others the 

 Government has offered new stock on terms sufficiently tempt- 

 ing to induce lenders to exchange. It will be instructive to note 

 the effect of one or two typical conversions. 



The first large loan by Natal was an issue in 1876 of 

 £1,200,000 _|T per cent, bonds redeemable by sinking fund not 

 later than 1919. The price of issue was 95^, giving a yield 

 (including redemption rights) to the investor of 4.76 per cent. 

 Eleven years later about half of these bonds were exchanged for 

 four per cent, consolidated stock, due 1937, at the rate of £106 

 stock for each £100 bond. In this case there was no right of 

 compulsory redemption, so the Government had to offer this 

 premium. This gives a yield of 4.48 per cent. — a saving of 0.28 

 per cent. it. is true, but then the Government has to pay it for 

 eighteen years longer. If it had waited till the loan fell due, 

 it could presumably have renewed it for less than four per cent, 

 (the present rate on new loans is about 35). By 1937 it would 

 probably be in a better position if it had not converted than it 

 will be actually. The advantage of conversion in this case is 

 quite illusory ; and so it usually is when investors have to be 

 tempted by a premium. 



A different case was that of the Natal loan of March, 1884. 

 This, issued in a time of temporary stringency, was in the form 

 of 5 per cent, bonds, but they were redeemable in ten years at 

 least or forty at most. (" Ten-forty bonds.") The yield to 

 the investor was 4.87 per cent. As soon as, in 1894, they became 

 redeemable, the Government took advantage of the extraordinary 

 cheapnos of money to convert all that were still outstanding, into 

 three and a half per cent, stock due 1914 to 1939, and this was 

 actually effected with a reduction of capital, so that the yield to 



