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?

20 Companies Responsible For the Most Carbon Emissions?

Since 1965, it’s estimated over 1.35 million metric tons (MtCO₂e) of greenhouse gases have been released into the atmosphere—and over a third can be traced back to just 20 companies.

This week’s chart draws on a dataset from the Climate Accountability Institute, and highlights the companies which have been responsible for the most carbon emissions in the past half-century.

The Sum of their Carbon Emissions

Between 1965-2017, the top 20 companies have contributed 480,169 MtCO₂e in total carbon emissions, or 35% of cumulative global emissions. This whopping amount is mostly from the combustion of their products—each company on this chart deals in fossil fuels.

The largest contributor? Saudi Aramco, the national petroleum and natural gas company of Saudi Arabia. Saudi Aramco actually comes in first on another list as well—it’s the most profitable company, making over $304 million daily.

However, this financial gain came at a significant cost: the state-owned giant’s operations have resulted in 59,262 MtCO₂e in carbon emissions since 1965. To put that into perspective, this total is more than six times China’s emissions in 2017 alone (9,838 MtCO₂e).

Explore the full list of companies by location, who owns them, and their total 1965–2017 emissions count below:

A Greener Business Model?

According to the researchers, all the companies that show up in today’s chart bear some responsibility for knowingly accelerating the climate crisis even after proven scientific evidence.

In fact, U.S.-based Exxon Mobil is currently on trial for misleading investors: the company downplayed the effect of climate change on its profitability, while internal calculations proved to be much larger. It also sowed public doubt on the immense impacts of rising greenhouse gas levels on the planet.

Growing sustainability and environmental concerns threaten the viability of old business models for these corporations, causing many to pivot away from the fossil fuel focus. Take BP for example—originally named British Petroleum, the company embraced “Beyond Petroleum” as its new rallying cry. More recently, it launched a carbon footprint calculator and is committed to keeping its carbon emissions flat into 2025.

The first step to reducing your emissions is to know where you stand. Find out your #carbonfootprint with our new calculator & share your pledge today!

— BP (@BP_plc) October 22, 2019

However, the Climate Accountability Institute argues that more can still be done, with the researchers calling for these companies to reduce their fossil fuel production in the near future.

Continued pressure on these “Big Oil” companies to peak their carbon emissions, and urgently increase their renewable energy investment, may help curb the climate crisis before it’s too late.