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The History of Interest Rates Over 670 Years



History of Interest Rates

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?

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Ranked: The World’s 50 Top Countries by GDP, by Sector Breakdown

This graphic shows GDP by country, broken down into three main sectors: services, industry, and agriculture.



Visualized: The Three Pillars of GDP, by Country

Over the last several decades, the service sector has fueled the economic activity of the world’s largest countries. Driving this trend has been changes in consumption, the easing of trade barriers, and rapid advancements in tech.

We can see this in the gross domestic product (GDP) breakdown of each country, which gets divided into three broad sectors: services, industry, and agriculture.

The above graphic from Pranav Gavali shows GDP by country, and how each sector contributes to an economy’s output, with data from the World Bank.

Drivers of GDP, by Country

As the most important and fastest growing component of GDP, services make up almost 60% of GDP in the world’s 50 largest countries. Following this is the industrial sector which includes the production of raw goods.

Below, we show how each sector contributes to GDP by country as of 2021:

(% GDP)
(% GDP)
(% GDP)
(% GDP)
🇺🇸 U.S.77.617.91.03.6$22.9
🇨🇳 China53.539.37.20.0$16.9
🇯🇵 Japan69.928.81.00.4$5.1
🇩🇪 Germany62.926.70.99.5$4.2
🇬🇧 UK71.617.30.710.4$3.1
🇫🇷 France70.316.71.611.4$2.9
🇮🇳 India47.926.117.38.7$2.9
🇮🇹 Italy65.022.71.910.4$2.1
🇨🇦 Canada*67.724.11.76.6$2.0
🇰🇷 South Korea57.$1.8
🇧🇷 Brazil57.820.27.514.6$1.6
🇦🇺 Australia65.725.52.36.5$1.6
🇷🇺 Russia54.131.83.910.3$1.6
🇪🇸 Spain67.420.42.69.6$1.4
🇲🇽 Mexico59.$1.3
🇮🇩 Indonesia42.839.813.34.1$1.2
🇮🇷 Iran47.338.012.42.3$1.1
🇳🇱 Netherlands69.417.91.511.2$1.0
🇨🇭 Switzerland71.924.60.62.8$0.8
🇹🇷 Turkiye52.831.15.510.6$0.8
🇹🇼 Taiwan60.638.01.50.0$0.8
🇸🇦 Saudi Arabia46.544.72.76.1$0.8
🇵🇱 Poland56.927.92.213.0$0.7
🇧🇪 Belgium68.819.60.710.9$0.6
🇸🇪 Sweden65.022.51.311.3$0.6
🇮🇱 Israel72.417.21.39.1$0.5
🇦🇷 Argentina52.523.67.116.8$0.5
🇦🇹 Austria62.425.81.210.5$0.5
🇳🇬 Nigeria43.831.423.41.4$0.5
🇹🇭 Thailand56.335.08.70.0$0.5
🇮🇪 Ireland55.437.81.05.8$0.5
🇭🇰 Hong Kong89.$0.4
🇩🇰 Denmark66.719.30.913.1$0.4
🇸🇬 Singapore70.324.40.05.3$0.4
🇿🇦 South Africa63.024.52.510.0$0.4
🇵🇭 Philippines61.028.910.10.0$0.4
🇪🇬 Egypt52.531.211.44.9$0.4
🇧🇩 Bangladesh51.333.311.63.7$0.4
🇳🇴 Norway51.836.31.710.2$0.4
🇻🇳 Vietnam41.237.512.68.8$0.4
🇲🇾 Malaysia51.637.89.61.1$0.4
🇦🇪 U.A.E.51.647.50.90.0$0.4
🇵🇰 Pakistan52.118.822.76.4$0.3
🇵🇹 Portugal64.719.62.213.5$0.3
🇫🇮 Finland60.324.12.313.4$0.3
🇨🇴 Colombia58.$0.3
🇷🇴 Romania59.$0.3
🇨🇿 Czechia58.830.31.89.1$0.3
🇨🇱 Chile54.431.33.610.6$0.3
🇳🇿 New

Industrial sector includes construction. Agriculture sector includes forestry and fishing. *Data as of 2019.

In the U.S., services make up nearly 78% of GDP. Apart from Hong Kong, it comprises the highest share of GDP across the world’s largest economies. Roughly 80% of American jobs in the private sector are in services, spanning from healthcare and entertainment to finance and logistics.

Like America, a growing share of China’s GDP is from services, contributing to almost 54% of total economic output, up from 44% in 2010. This can be attributed to rising incomes and higher productivity in the sector as the economy has grown and matured, among other factors.

In a departure from the top 10 biggest countries globally, agriculture continues to drive a large portion of India’s GDP. India is the world’s second largest producer of wheat and rice, with agriculture accounting for 44% of the country’s employment.

While the services sector has grown in India, it makes up a greater share in other emerging economies such as Brazil (58%), Mexico (59%), and the Philippines (61%).

Growth Dynamics

Services-led growth has risen faster than manufacturing across many developing nations, underpinned by productivity growth.

This structural shift is seen across economies. In many countries in Africa, for instance, jobs have increasingly moved from agriculture to services and trade, where it now accounts for 42% of jobs.

These growth patterns are supported by rising incomes in developing economies, while innovation in tech is lowering barriers to enabling service growth. As the industrial sector makes up a lower share of trade and economic activity, the service sector is projected to make up 77% of global GDP by 2035.

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