Against the Gods: The Remarkable Story of Risk

by Peter L. Bernstein

An ingenious risk-management contract was issued on June 1, 1863, when the Confederate States of America, hard up for credit and desperate for money, issued the “7 Per Cent Cotton Loan.” The loan had some unusual provisions that gave it the look of a derivative instrument.3 The principal amount was not repayable in Confederate dollars nor was it repayable at the Confederate capitol in Richmond, Virginia. Instead, it was set at “3 Millions Sterling Or 75 Millions Francs” and it was repayable in forty semiannual installments in Paris, London, Amsterdam, or Frankfurt, at the option of the bondholder—who was given the additional option of taking payment in cotton rather than money, at the rate of sixpence sterling per pound, “at any time not later than six months after the ratification of a Treaty of Peace between the belligerents.”