Abstract: Paying for Independence: Brazil 1822-1850: Emerging States, Emerging Markets and Emerging Intermediaries
Brazil’s earliest experience with international sovereign borrowing offers a unique case to assess the emergence of new borrowers in a new market, invoking new risks. Given the loss of the richest portion of the Portuguese empire, British capital markets lost confidence in the ability of Portugal to meet the obligations of its first sovereign loan. To accommodate this concern, the responsibility for that loan transferred to the Brazilian state, motivating that country’s first foreign debt obligations in 1824/25. Maintaining full debt servicing obligations only lasted until 1828. Simultaneously, N.M. Rothschild & Sons, emerging as one of the premier bankers on the new London sovereign debt markets, assumed the intermediation role for the Brazilian state in London markets. Using a newly accumulated high-frequency database of the prices of sovereign debt issued in the London market for all newly issuing countries and research from the national archives of Brazil, Great Britain and Portugal, this paper finds that Brazil and N.M. Rothchild & Sons engaged in the minimum actions necessary to maintain their financial integrity. At the same time the financial market (the cumulative results of anonymous bond purchasers and sellers) knowledgeably discriminated among new borrowers in a “new” market.