Create Growth-Linked Bonds

A year ago, at the Summit of the Americas, 34 western hemisphere heads of state agreed to promote the creation of government-issued growth-linked bonds whose payout is tied to gross domestic product (GDP). But progress has mostly stalled. Only one major proposal related to such bonds, from Argentina, is on the table. A unique opportunity to strengthen the world’s financial infrastructure and increase economic efficiency for many years to come could be slipping away.

I have argued for growth-linked bonds since my 1993 book Macro Markets . GDP is the most comprehensive measure we have of an economy’s success. The simplest form of growth-linked bonds would be a long-term government security that pays a regular dividend proportional to the GDP of the issuing country.

Suppose that the Argentine government issued perpetual bonds that paid an annual dividend equal to one ten-billionth of Argentine GDP, payable in pesos. Because Argentina’s annual GDP now runs at about 500 billion pesos, one of these bonds today would pay a dividend of 50 pesos (about $17 or €13) a year. The dividend would rise or fall as the success of Argentina’s economy is revealed through time.

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