A Bond Paid For and Denominated In Gold: A Rhyme From the Past

I don't think that we have seen such a thing since the gold bonds issued in the US, which went the way of the twenty dollar gold piece in the early part of the 20th century.

There is a Bloomberg story on this today that is not generally available so I do not have a link as yet. It will be added as it becomes available.  An astute reader sent it my way.

Here is a link to the actual bond announcement on the JSE site.

As you may recall, South Africa puts the 'S' in BRICS.

Most Americans will struggle with the notion of using any other measure of value than the US dollar, because they have had so little exposure to foreign exchange, except for the occasional trip to Canada or Mexico.    But the rest of the world seems more keenly aware that notional currencies are various forms of measurement of value, and the 'referees' can move the goalposts if they will.

I am not so sure whether it is a good investment or not.  After all, a bond is a bond, and represents the credit risk of the issuer, no matter what yardstick is used to measure it.

But it is certainly an interesting development to see a real bond denominated in both purchase and payout with gold as its underlying 'currency' once again. 

What will we remember next?  

Gold Bond Harks to Gilded Age and Presages Future
By Mark Gilbert

Aug. 22 (Bloomberg View) -- In these post-credit-crisis days, true innovation in the shell-shocked world of money is a rarity. Mistrust of the financial industry, central banks and fiat currencies, however, is ubiquitous. So a new breed of security that combines innovation and mistrust is noteworthy.

FirstRand Bank Ltd., South Africa's second-biggest lender, has created what seems to be the world's first fully gold-denominated bond, borrowing 2 billion rand ($188 million) for five years. Investors have to pay for their bonds in krugerrands, gold coins minted by the South African government with one troy ounce of the metal.

One of the charges leveled against gold -- the "barbarous relic" in the sweeping judgment of John Maynard Keynes -- is that you don't earn interest or dividends on the precious metal; the FirstRand bond offers 0.5 percent:

At its expiry the value of the bond is determined by the current gold price, the Dollar/Rand exchange rate and the interest earned. This interest is calculated in terms of ounces of gold as represented by Krugerrands. Investors may take physical delivery of the Krugerrands on maturity or opt to get settled in cash...