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Consols (originally short for consolidated annuities, but can now be taken to mean consolidated stock) are a form of British government bond (gilt), dating originally from the 18th century. Consols are one of the rare examples of an actual perpetuity: although they may be redeemed by the British government, they are unlikely to do so in the foreseeable future.

In 1752, the Chancellor of the Exchequer and Prime Minister Sir Henry Pelham converted all outstanding issues of redeemable government stock into one bond, Consolidated 3.5% Annuities, in order to reduce the coupon rate paid on the government debt.

In 1757, the coupon rate on the stock was reduced to 3%, leaving the stock as Consolidated 3% Annuities. The coupon rate remained at 3% until 1888. In 1888, the Chancellor of the Exchequer, George Joachim Goschen, converted the existing Consolidated 3% Annuities, along with Reduced 3% Annuities (issued in 1752) and New 3% Annuities (1855), into a new bond, 2¾% Consolidated Stock under the National Debt (Conversion) Act 1888 (Goschen’s Conversion). As part of the terms of the Act, the coupon rate of the stock was reduced to 2½% in 1903, and the stock given a first redemption date of 5 April 1923, after which point the stock could be redeemed at par value by Act of Parliament.

Consols still exist today: in their current form as 2½% Consolidated Stock (1923 or after), they remain a small part of the UK Government’s debt portfolio. As the bond has a low coupon, there is little incentive for the government to redeem it. Unlike most gilts, which pay coupons semi-annually, because of its age Consols pay coupons four times a year. Also, as a result of its uncertain redemption date, they are typically treated as a perpetual bond.

Given their long life, references to Consols can be found in many places, including literature (such as David Copperfield by Charles Dickens, Howards End by E. M. Forster, Vanity Fair by William Makepeace Thackeray, Of Human Bondage by William Somerset Maugham, and The Forsyte Saga by John Galsworthy) and in economics.

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1911 encyclopedia

Up to date as of January 14, 2010

From LoveToKnow 1911

CONSOLS, an abbreviation of consolidated annuities, a form of British government stock which originated in 1751. Consols now form the larger portion of the funded debt of the United Kingdom. In the progress of the national debt it was deemed expedient, on grounds which have been much questioned, instead of borrowing at various rates of interest, according to the state of the market or the need and credit of the government, to offer a fixed rate of interest, usually 3 or 31%, and as the market required to give the lenders an advantage in the principal funded. Thus subscribers of £ioo would sometimes receive £150 of 3% stock. In 1815, at the close of the French wars, a large loan was raised at as much as £174 3% stock for £ioo. The low rate of interest was thus purely nominal, while the principal of the debt was increased beyond all due proportion. This practice began in the reign of George II., when some portions of the debt on which the interest had been successfully reduced were consolidated into 3% annuities, and consols, as the annuities were called, and other stocks of nominally low interest, rapidlyincreased under the same practice during the great wars. In times of peace, when the rate of money has enabled portions of the debt at a higher interest to be commuted into stock of lower Interest, it has usually been into consols that the conversion has been effected. Temporary deficits of the revenue have been covered by an issue of consols; exchequer bills when funded have taken the same form, though not constantly or exclusively; and some government loans for special purposes, such as the relief of the Irish famine and the expenditure in the Crimean and Boer Wars have been wholly or partly raised in consols. The consequence has been to give this stock a pre-eminence in the amount of the funded debt. See further under NATIONAL DEBT: United Kingdom.


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