Bonds and the American civil war

Then came the bonds. Bonds are not the most popular of financial instruments. The returns are low and there is always the risk of inflation catching up or overtaking their rate of return.

However, bonds are no small time contenders. The bond market is many times the world's stock markets put together. Moreover, they have been an instrumental tool for governments in times of economic strife. Cotton backed bonds were the main source of money for the Confederates, the southern US government, to get money to finance the war against the North. These bonds promised interest like any other bond. However, they went a step further. In case the interest could not be paid by the government, these bonds were exchangeable for cotton! Cotton, a rich cash-crop was an excellent backing to these bonds. Several people became interested and bought the bonds.

With money sourced from these bonds, the war dragged further. Finally, the North, understanding the importance of this crop in the scheme of things, played a master-stroke. Devoting a large section of their military strength to it, the North secured the port of New Orleans. New Orleans was the main exit point for all the cotton the south exported. With the port under northern control, the promise of cotton in exchange for the southern bonds to the bond-holders went down the drain. Their value plummeted and so did the source of money for the South contributing greatly to their defeat in the end.