What are war bonds?

FUNDING a war isn’t easy.

Governments often borrow cash from regular citizens to fund international conflict using war bonds, and Ukraine is no different.

1

What are war bonds?

During wartime, countries see less cashflow and more demands on their budgets.

This can be a catastrophic combination, leading to economic downturn on the home front and in the battle field.

And when states already owe money to creditors for peacetime expenses, it’s a recipe for recession.

So governments use war bonds to collect cash from citizens who are eager to help out.

The government pledges to pay citizens back at a designated date years later, sometimes with small payments issued periodically.

If the country issuing the bonds faces an economic nose-dive, they can default.

Bonds are said to prevent wartime inflation – which is good for investors, because too much inflation can tank a bond’s value.

That’s because the government often sets a fixed amount for a bond’s eventual pay-out.

So when a citizen cashes their bond in, even if the numerical value has gone up, there’s a chance it will be worth less than it once was.

The system is designed to appeal not necessarily to people’s financial acumen, but to their patriotism.

Governments use bonds to raise funds during peacetime, as well. Rishi Sunak famously offered “green bonds” to stimulate eco-friendly tech in 2021.

🔵 Read our National Lottery live blog for the latest updates

Who has sold war bonds?

Governments sell war bonds to their citizens as a way of crowdfunding military operations.

They are known to push war bonds with jingoistic ad campaigns, urging civilians to support soldiers with their wallets.

Everyone from the US to Japan has gotten in on the war bond game.

Pre-World War I

Governments have issued war bonds since before World War I. But in earlier centuries, they were only purchased by the superrich.

The UK was still paying off bonds that had funded the Crimean and Napoleonic wars as recently as 2014.

Those 18th and 19th century bonds’ interest rates were so low, the British government decided to keep paying them off for centuries rather than consolidate the debt.

World War I

The British government funded World War I through a variety of sources, including loans from the US and war bonds.

As with the Crimean and Napoleonic war debts, it took the UK quite a while to finish paying the tab.

Chancellor of the Exchequer George Osborne confirmed that the country’s Great War debts, including those from bonds, would finally be paid off in March 2015.

“This is a moment for Britain to be proud of,” he said. “We can, at last, pay off the debts Britain incurred to fight the First World War.”

World War II

The UK once again turned to war bonds during World War II – along with Allied and Axis powers who asked people to cough up cash.

The practice of funding war through bonds was nothing new by the 1930s.

But now the average citizen could participate, buying bonds as cheap as five shillings.

Ukraine

Ukraine is strapped for cash since Russia invaded in February 2022.

The country’s Ministry of Finance has given citizens, businesses and foreign investors the chance to boost the country’s budget through war bonds.

Ukraine’s Ministry of Finance tweeted that it had raised the equivalent of £201million in war bonds by March 1, 2022, one week after Russia’s invasion.

Historically, many war bonds could only be cashed years after they’d been issued.

Ukraine is betting it will have enough cash to repay bond holders sooner, issuing bonds that will reach maturity either one year or two months after purchase.

The country is also accepting cryptocurrency for the bonds in a historic first.