Internal War Loans Belligerent Countries

An instance of a future reduction in interest is illustrated by
the third Russian War Loan issued in May, 1915. The bonds
bear ^y2% to May 14, 1921. The interest is reduced to 5%
on bonds not presented to the Russian State Bank by December
14, 1920, for payment at par in the following May.
An interesting feature of Australia's loans, Great Britain's
Second War Loan and all of the Dominion of Canada's four
war loans was the payment of an interest bonus on the first
interest date. These loans were brought out at par, and the
dates fixed for the final installment payments were considerably
later than the dates when the loans began to bear
interest. As the accrued interest was not added to the issue
prices, subscribers really received a bonus in the form of unearned
interest. While nominally these loans were brought
out at par and the net interest rates were apparently the
same as the coupon rates, in reality the cost to subscribers
was less than par and the net interest return higher than the
coupon rate. Several explanations may be advanced for
adopting this form of issue. It is apparent that less clerical
work'is entailed and conditions of payment are more easily
understood by the subscriber. Of course the practice increases
the cost of funds to the government.
Canada and the United States are the only nations which
state in their official prospectuses that their war loans are
payable in gold. The laws authorizing the three liberty loans
of the United States state that the bonds are payable in gold
of the present standard of value. Obligations of the United *
States may be issued under Act of Congress as amended
April 4, 1918, payable in foreign currencies, but obligations
so issued will not be payable also in United States gold coin.
A special privilege was given to holders of the Italian
Mobilization Loan who also subscribed to the First Italian
War Loan by allowing a concession of two points from the
issue price of the First War Loan. A similar adjustment
has been made in most of the subsequent loans. This policy
takes the place of a conversion privilege.
Another consideration to be taken into account in comparing
yields of war loans is the extent to which subscriptions are
voluntary. To the extent that they are voluntary so much
more accurately do they reflect actual financial conditions,
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