Abstract
In order to restore the Navy and prepare for war, on 2 January 1672 Charles II announced the decision to stop repayments of treasury orders, which was the Stop of Exchequer. At the time, most of the treasury orders were held by London goldsmith-bankers. In February 1677, by Letters Patent Charles II authorised payment of annual interest at 6% on the debt of £1.3 million owed to those affected by the Stop. The repayment of interest faltered after 1684. Until 1702, a provision for the discharge of interest on the debt was made again: payment of interest at 3% annually to begin in December 1705. A large part of the defaulted loans came from money deposited with the goldsmiths. Consequently, a great number of people, who did not directly lend money to the crown, were also hurt by the Stop. There were two layers of credit chains: one between the goldsmith-bankers and the crown, the other between the depositors and the goldsmith-bankers. When Charles II discharged the debts of goldsmith-bankers owed to their depositors, and used tax revenue to repay the debt, the personal debt of goldsmiths to their creditors was converted into the debt of the crown. With the help of the Assignment Books, this paper will examine the social background of the creditors holding annuity, reconstruct market prices of annuity, and analyse what elements influenced the secondary market of annuity. Taking advantage of price information for secondary annuity transactions, this paper constructs the yearly interest payment to secondary price ratio of annuity to measure the risk associated with the investment perceived by the investors. The bigger ratio is, the higher the risk (i.e. of default) perceived by investors. As shown in Table below, there was no noticeable change in the ratio before and after the constitutional change of 1689. Instead, the interest to price ratio was high in 1685-1701 when there was no repayment. Once the provision for the discharge of interest was made, the secondary market not only became active prior to the actual date of repayment, but the ratio of 1702-5 fell to the level of 1678-84. It seems that the credibility of government perceived by the financial market did not dramatically change between the last years of Charles II and the first 5 years of the new regime.