The History of Interest Rates Over 670 Years

Today, we live in a low-interest-rate environment, where the cost of borrowing for governments and institutions is lower than the historical average. It is easy to see that interest rates are at generational lows, but did you know that they are also at 670-year lows?

This week’s chart outlines the interest rates attached to loans dating back to the 1350s. Take a look at the diminishing history of the cost of debt—money has never been cheaper for governments to borrow than it is today.

The Birth of an Investing Class

Trade brought many good ideas to Europe, while helping spur the Renaissance and the development of the money economy.

Key European ports and trading nations, such as the Republic of Genoa or the Netherlands during the Renaissance period, help provide a good indication of the cost of borrowing in the early history of interest rates.

The Republic of Genoa: 4-5 year Lending Rate

Genoa became a junior associate of the Spanish Empire, with Genovese bankers financing many of the Spanish crown’s foreign endeavors.

Genovese bankers provided the Spanish royal family with credit and regular income. The Spanish crown also converted unreliable shipments of New World silver into capital for further ventures through bankers in Genoa.

Dutch Perpetual Bonds

A perpetual bond is a bond with no maturity date. Investors can treat this type of bond as an equity, not as debt. Issuers pay a coupon on perpetual bonds forever, and do not have to redeem the principal—much like the dividend from a blue-chip company.

By 1640, there was so much confidence in Holland’s public debt, that it made the refinancing of outstanding debt with a much lower interest rate of 5% possible.

Dutch provincial and municipal borrowers issued three types of debt:

1. Promissory notes (Obligatiën): Short-term debt, in the form of bearer bonds, that was readily negotiable
2. Redeemable bonds (Losrenten): Paid an annual interest to the holder, whose name appeared in a public-debt ledger until the loan was paid off
3. Life annuities (Lijfrenten): Paid interest during the life of the buyer, where death cancels the principal

Unlike other countries where private bankers issued public debt, Holland dealt directly with prospective bondholders. They issued many bonds of small coupons that attracted small savers, like craftsmen and often women.

Rule Britannia: British Consols

In 1752, the British government converted all its outstanding debt into one bond, the Consolidated 3.5% Annuities, in order to reduce the interest rate it paid. Five years later, the annual interest rate on the stock dropped to 3%, adjusting the stock as Consolidated 3% Annuities.

The coupon rate remained at 3% until 1888, when the finance minister converted the Consolidated 3% Annuities, along with Reduced 3% Annuities (1752) and New 3% Annuities (1855), into a new bond─the 2.75% Consolidated Stock. The interest rate was further reduced to 2.5% in 1903.

Interest rates briefly went back up in 1927 when Winston Churchill issued a new government stock, the 4% Consols, as a partial refinancing of WWI war bonds.

American Ascendancy: The U.S. Treasury Notes

The United States Congress passed an act in 1870 authorizing three separate consol issues with redemption privileges after 10, 15, and 30 years. This was the beginning of what became known as Treasury Bills, the modern benchmark for interest rates.

The Great Inflation of the 1970s

In the 1970s, the global stock market was a mess. Over an 18-month period, the market lost 40% of its value. For close to a decade, few people wanted to invest in public markets. Economic growth was weak, resulting in double-digit unemployment rates.

The low interest policies of the Federal Reserve in the early ‘70s encouraged full employment, but also caused high inflation. Under new leadership, the central bank would later reverse its policies, raising interest rates to 20% in an effort to reset capitalism and encourage investment.

Looking Forward: Cheap Money

Since then, interest rates set by government debt have been rapidly declining, while the global economy has rapidly expanded. Further, financial crises have driven interest rates to just above zero in order to spur spending and investment.

It is clear that the arc of lending bends towards ever-decreasing interest rates, but how low can they go?

Ranked: Which Economies Are the Most Competitive?

What makes a country successful from an economic perspective? Many think of this in terms of GDP per capita—but in a rapidly changing world, our definitions of progress have evolved to encompass much more.

This animated Chart of the Week visualizes 10 years of global competitiveness, according to the World Economic Forum, and tracks how rankings have changed in this time.

How Do You Measure Competition?

The WEF’s annual Global Competitiveness Report defines the concept of ‘competitiveness’ as an economy’s productivity—and the institutions, policies, and factors which shape this.

This year’s edition unpacks the national competitiveness of 141 countries, using the newly-introduced Global Competitiveness Index (GCI) 4.0 which looks at four key metrics:

1. Enabling Environment
   Includes: Institutions, Infrastructure, ICT Adoption*, Macroeconomic Activity
   *Refers to information and communications technology
2. Human Capital
   Includes: Health, Skills
3. Markets
   Includes: Product Market, Labor Market, Financial System, Market Size
4. Innovation Ecosystem
   Includes: Business Dynamics, Innovation Capability

Each country’s overall competitiveness score is an average of these 12 main pillars of productivity. With that out of the way, let’s dive into the countries which emerge triumphant.

The Most Competitive: Movers and Shakers

The world’s top countries excel in many fields—but there can only be one #1. In 2019, Singapore wins the coveted “most competitive economy” title, with a 84.8 score on the GCI.

The nation’s developed infrastructure, health, labor market, and financial system have all propelled it forward—swapping with the U.S. (83.7) for the top spot. However, more can be done, as the report notes Singapore still lacks press freedom and demonstrates a low commitment to sustainability.

How have the current scores of the most competitive economies improved or fallen behind, compared to 2018?

Rank	Economy	2019 Score	2018 Score	2018-2019 Change
#1	🇸🇬 Singapore	84.8	83.5	+1.3
#2	🇺🇸 United States	83.7	85.6	-2
#3	🇭🇰 Hong Kong	83.1	82.3	+0.9
#4	🇳🇱 Netherlands	82.4	82.4	0
#5	🇨🇭 Switzerland	82.3	82.6	-0.3
#6	🇯🇵 Japan	82.3	82.5	-0.2
#7	🇩🇪 Germany	81.8	82.8	-1
#8	🇸🇪 Sweden	81.2	81.7	-0.4
#9	🇬🇧 United Kingdom	81.2	82	-0.8
#10	🇩🇰 Denmark	81.2	80.6	+0.6

Finland (80.2) and Canada (79.6) are notable exits from this top 10 list over the years. Meanwhile, Denmark (81.2) disappeared from the rankings for five years, but managed to climb back up in 2018.

Regional Competitiveness: Highs and Lows

Another perspective on the most competitive economies is to look at how countries fare within regions, and how these regions compete among each other.

Middle East and North Africa (MENA) has the widest gap in competitiveness scores—Israel (76.7) scores over double that of poorest-performing Yemen (35.5). Interestingly, the MENA region showed the most progress, growing its median score by 2.77% between 2018-2019.

The narrowest gap is actually in South Asia, with just a single-digit difference between India (61.4) and Nepal (51.6). However, the region also grew the slowest, with only 0.08% increase in median score over a year.

Region	Best Performer	2019 Score	Worst Performer	2019 Score	Regional Gap
Europe and North America	🇺🇸 United States	83.7	🇧🇦 Bosnia & Herzegovina	54.7	29
Latin America and the Caribbean	🇨🇱 Chile	70.5	🇭🇹 Haiti	36.3	34.2
East Asia and Pacific	🇸🇬 Singapore	84.8	🇱🇦 Laos	50.1	34.7
South Asia	🇮🇳 India	61.4	🇳🇵 Nepal	51.6	9.8
Eurasia	🇷🇺 Russia	66.7	🇹🇯 Tajikistan	52.4	14.3
Middle East and North Africa	🇮🇱 Israel	76.7	🇾🇪 Yemen	35.5	41.2
Sub-Saharan Africa	🇲🇺 Mauritius	64.3	🇹🇩 Chad	35.1	29.2

Across all regions, the WEF found that East Asia’s 73.9 median score was the highest. Europe and North America were not far behind with a 70.9 median score. This is consistent with the fact that the most competitive economies have all come from these regions in the past decade.

As all these countries race towards the frontier—an ideal state where productivity growth is not constrained—the report notes that competitiveness “does not imply a zero-sum game”. Instead, any and all countries are capable of improving their productivity according to the GCI measures.



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