World War I Bonds

During World War I, US government bonds came in three major varieties: discount, registered and bearer coupon. A discount bond made a single payment of its face value to the bearer on its maturity date. Such bonds initially sold for something less than their face value, hence their name. The interest earned was the difference between the purchase price and the face value. Most discount bonds were short-term.

A registered bond, by contrast, credited periodic (e.g., semiannual) interest payments to the account of the registered owner and repaid its face value upon its maturity, years or decades after its issuance. Registration of ownership reduced the chance of loss from theft or loss but made the bonds less easily saleable (liquid).

A bearer coupon bond, by contrast, could be easily and cheaply transferred to a new owner. Interest payments were collected by the holder by clipping and remitting a coupon, like those pictured, when the interest fell due. In June 1930, for example, the bondholder could exchange the bottom right coupon for 88 cents. Like a registered bond, a coupon bond repaid its face value on its maturity date, but due to their bearer nature were more at risk of physical loss.

High levels of inflation during and after the war ate away much of the purchasing power of the bonds. In addition, the US government technically defaulted on many Liberty Bonds, which promised payment of interest and principal in gold, after Franklin D. Roosevelt devalued the dollar from $20.67 to $35.00 per ounce of gold in 1933.

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