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The Units of Account in Eurobonds
Published online by Cambridge University Press: 21 May 2009
Extract
Since 1957 and at an accelerated pace since 1963, an international capital market for bonds, called the Eurobond market or Euro-issue market, has been developing in Western Europe and the United States. It is a market for bearer bonds issued by international organisations, large industrial concerns or their subsidiary finance corporations, States, state enterprises and local authorities. They are placed with an international clientèle: wealthy private persons (oil sheiks among others), banks and institutional investors. The distribution is entrusted to issuing syndicates in which bankers from London, Luxembourg, Frankfurt and Amsterdam, and securities brokers from New York co-operate. The European capital market is a parallel market in addition to the domestic market, and should be distinguished from the traditional international markets of, for instance, London, New York and Zürich. Direct state influence is but little. The bonds are usually expressed in U.S. dollars, D-Marks or units of account, or they may have an option of currency. International loans may also be expressed in Dutch guilders, or in French or Belgian francs. The bonds are often issued by subsidiary finance corporations in Luxembourg, in the Netherlands, in the American state of Delaware or in the Netherlands Antilles, where no withholding taxes are levied on the interest payments. The absence of coupon tax has stimulated the development of the Eurobond market.
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References
1. This market must be distinguished from the Eurodollar market which is only concerned with short-term capital.
2. The technique of “issuing” Eurobonds aims at by-passing national regulations on new issues on the domestic market, regulations on prospectuses, authorization, queuing schemes etc.; it would be more appropriate to speak of “placing” rather than “issuing”.
3. See further Goldman, B., Lex Meicatoria et frontières du droit, Arch. Phil. Droit 1964, p. 176 ff.Google Scholar
4. The gold value of the U A equals that of the dollar prior to December 1971. This can be accounted for by the fact that in 1950 the dollar was the most important international currency, and that the USA had made a considerable dollar contribution to the EPU fund.
5. Collin, F., The formation of a European capital market, p. 13.Google ScholarThe use of a currency of account in international loans, p. 17.Google ScholarThe unit of account in the European capital market, p. 33.Google Scholar Published by the Kredietbank, Brussels.
6. Blondeel, J.A., A new form of international financing: loans in European Units of Account, Columbia Law Review, 1964, p. 1007Google Scholar: “It might well be suggested that if governments do not hesitate to make use of a unit of account, it is equally lawful for individuals to do so”. See also: Einzig, P., The Eurobond Market, London 1969, p. 139.Google Scholar
7. Austria, Belgian, Denmark, Federal Republic of Germany, France, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey and the United Kingdom.
8. Or a value expressed in dollars: the dollar has a direct gold value.
9. “In the absence of such a declaration and acceptance, the gold value of a reference currency is its gold value then current, as determined by the official definition given to the currency by the country of issue, either in terms of gold or by reference to another currency having a gold value”. This applies to the national currency of Switzerland which is not a member of the I.M.F. See the Swiss Federal Coinage Law of 17 December 1952.
10. E.g. 6 per cent Imatran Voima (Finland) 1963–1978.
11. Only in the first five UA loans were Swiss Banks authorised to act as paying banks.
12. “The paying bank shall, without liability on its part, choose such reference currency on behalf and in the interest of any holder who has not made such choice. The unit of account shall be converted into the said reference currency on the basis of the relation between the gold value of that reference currency and the value of the UA at 00.01 A.M. GMT on the date of payment by the paying bank”.
13. This presumes the debtor and creditor to be residing within the countries of the 17 reference currencies.
14. The first three UA loans contained different provisions (5 per cent SACOR 1961; 5 1/2 per cent SACOR 1962 and 5 1/2 per cent Norges Kommunalbank 1963) See van der Mensbrugghe, J.O.M., Bond issues in European Units of Account, IMF Staff Papers, 11 1964, p. 449.Google Scholar
15. Blondeel, J.A., op. cit. p. 1000.Google Scholar
16. The first three loans (see note 14) did not provide for a period of adjustment; the fourth loan (6 per cent Imatran Voima Oasakeyhtio 1963) spoke of “period of transition”.
17. A distinction must be made between the base value and the current value. The “one” currency has a base value equal to the current value at the time of issue. The current value is the revalued, subsequently the devalued gold value.
18. The reason stated by G.R. Delaume seems to be in correct: see Legal aspects of international lending, New York 1967 p. 273Google Scholar: in order to reduce the number of changes in the gold value of the UA. As the two conditions need not be fulfilled during the period of adjustment, more UA changes will be possible. What does not change during this period is the base value of the UA.
19. Incorrectly, it would seem, J.A. Blondeel considers at p. 1006, op. cit.: “In the event of a general increase in the price of gold, i.e. a general devaluation of the reference currencies, the unit of account would be devalued …”
20. It seems natural to remedy the omission in previous UA loans by adding this clause as the implied will of the parties.
21. The choice of Luxembourg law can be explained by the fact that the Luxembourg Kredietbank has always been the managing bank of UA loans.
22. Grand-ducal Decree of 14 May 1935 relating to gold and foreign currency clauses.
23. Other writers share this opinion, among them J.O.M. van der Mensbrugghe, loc. cit. p. 449: “The absence of a direct link between changes in the unit of account on the one hand and in the price of gold on the other hand, indicated that the bonds in EUA could not be considered as legally including a gold clause”.
24. For the possibility of applying the lex fori, see Batiffol, , Droit international privé, Paris 1971, II, p. 268Google Scholar, and for the possible application of the lex loci solutionis: Nussbaum, Money in the Law, Brooklyn 1950, p. 355.Google Scholar
25. Yale Law Journal 1962, p. 1313.Google Scholar
26. Report of a Group of Experts formed by the EEC Commission, Het tot stand brengen van een Europese kapitaalmarkt (The creation of a European capital market), Brussels 1966, section 13(12); see also section 13(9).
27. ENEL stands for Ente Nazionale per l'Energia Elettrica.
28. Van Hecke, G., Problèmes juridiques des emprunts internationaux, Leiden 1964, p. 185.Google Scholar
29. Abs, Hermann J., Der europäische Wertpapier- und Emissionsmarkt im Hinblick auf internationale Finanzierungen, Frankfurt 1964, p. 51.Google Scholar
30. Tullio Treves, Les clauses monétaires dans les émissions d'euro-obligations, in Les Euro-obligations, Paris 1972, p. 146.Google Scholar
31. For the Netherlands see Art. 5, Beleggingswet, which applies to the Rijkspostspaarbank, the Algemeen Burgerlijk Pensioenfonds and the Postcheque- en Girodienst; and Art. 2, Beleggingsvoorshriften voor de algemene spaarbanken (Stb. 1954, 440).
32. Directive of the EEC Council of Ministers, 11 May 1960, Official Journal 921/1960.
33. Com. (67) 55, 7 February 1967.
34. From September 1971 to January 1974 a closed circuit payment system was set up for the purchasing of guilder bonds by non-residents. Non-residents were allowed to buy guilder bonds from residents only with the proceeds of non-resident sales of such bonds. The “O”(bligation) Guilders could be held by non-residents who could either invest them in guilder bonds or cede them to other non-residents.
35. Com (74) 2105, 10 December 1974.