William Emmanuel Rappard, Trois conversions à rebours à Genève en 1863 et en 1866 (1949)

Rappard’s historical article examines three Genevan debt operations that reversed the usual logic of public-debt conversion: instead of reducing interest when public credit improved, they raised nominal interest rates during financial difficulty. Drawing on legislative debates, statutes, and annual accounts, he asks why governments and creditors accepted arrangements apparently more advantageous to private lenders than to the public debtor. His answer distinguishes immediate budgetary relief from lasting financial recovery. Higher interest could purchase the abandonment of repayment rights or permit the retirement of depreciated securities, but the resulting economies did not necessarily strengthen public credit.

Etant donné que les trois opérations du trésor genevois auxquelles sera consacrée cette étude furent tentées en des périodes de difficultés financières et qu'elles eurent pour effet d'élever et non de réduire le taux de l'intérêt payable à ses créanciers, il sera peut-être permis de les définir comme des conversions à rebours.

English translation: Given that the three operations of the Genevan treasury to which this study will be devoted were attempted during periods of financial difficulty and had the effect of raising rather than reducing the interest rate payable to its creditors, it may perhaps be permissible to define them as conversions in reverse.

The article’s five sections move from the origins of Geneva’s debt through its deterioration between 1848 and 1862, then examine the 1863 conversion, the two operations of 1866, and their subsequent reversal. Rappard begins with the revolution of 1846, which brought James Fazy to power and established a democratic constitution. The new authorities inherited substantial cash reserves rather than an indebted treasury. Economic crisis and unemployment soon combined with ambitious public works to exhaust those resources. Rappard also advances a social explanation: prosperous taxpayers under the former regime had demanded relatively few state services, whereas the new political constituency possessed more unmet needs than taxable wealth.

The proposed lakeside road illustrates this transition. Fazy expected current revenues to finance improvements without borrowing; the future General Dufour instead advocated borrowing to accelerate construction and distribute its costs across the generations that would benefit. Rappard treats Dufour’s reasoning seriously, distinguishing investment financed by debt from Fazy’s habitual financial optimism. Nevertheless, mounting expenditure, disappointing receipts, and emergency employment measures quickly turned accumulated reserves into deficits.

The survey of borrowing after 1848 traces a mutually reinforcing deterioration of budgets and credit. Rappard warns against simply adding authorized loans: some were amortized, while others never attracted subscriptions for their full amount. Yet these subscription failures themselves reveal the weakness of public credit. Neither radicals nor their conservative opponents were prepared to raise taxes substantially. Sales of land released by the demolition of Geneva’s fortifications yielded less ready money than Fazy suggested, since purchasers often remained indebted to the state.

Le recours à l'emprunt, de plus en plus nécessaire, en devenait de plus en plus difficile et onéreux.

English translation: Recourse to borrowing, increasingly necessary, thereby became increasingly difficult and costly.

By early 1863, debt approached twenty million francs for roughly eighty thousand inhabitants. The government proposed further borrowing to meet existing amortization obligations. Challet-Venel’s alternative offered holders of amortizable 4% securities a perpetual return of 4⅕% in exchange for surrendering their chances of repayment at par. The measure had support across the political divide, including from Arthur Chenevière, the opposition’s leading financial critic. Creditors received a small immediate increase in income; the treasury escaped much larger current repayment charges.

Rappard nevertheless questions the legal interpretation underlying the treatment of creditors who declined conversion. Calculating annual amortization on outstanding securities rather than original issues progressively diminished their repayment prospects. He sees this as frustrating the earlier legislation’s purpose and the holders’ legitimate expectations. Most major holders accepted the conversion, and the budget obtained substantial immediate relief. His judgment remains sharply qualified:

Pour le malade qu'était le budget genevois, c'était peut-être un palliatif propre à calmer momentanément ses douleurs. Mais ce remède était essentiellement impropre à améliorer son état général.

English translation: For the patient that was the Genevan budget, this was perhaps a palliative capable of temporarily soothing its pains. But this remedy was fundamentally incapable of improving its general condition.

The two conversions of 1866 belonged to Chenevière’s conservative administration. Its restoration of amortization guarantees helped attract lenders to 5% securities. The May operation authorized the replacement of 4% securities already held by the state, notably through land payments, with new 5% debt issued at par, valuing the old securities at 84. Although creditors received no conversion option, Rappard includes the operation because one debt instrument replaced another at a higher nominal rate.

The September operation concerned the 3% loan for the electoral building, originally supported by conservatives wishing to remove electoral proceedings from Saint-Pierre cathedral. Holders could retain their rights or accept repayment at 65, in cash or 5% securities at par. Chenevière’s calculation exposes the distinction between an increased coupon and a reduced capital liability:

Il est facile de se rendre compte que si la conversion réussissait pour l'ensemble de l'emprunt, l'Etat devrait affecter au service des intérêts des lettres de rente créées en contre-valeur, une somme de 7800 francs au lieu de celle de 7200 qui figure au budget, mais d'autre part il amortirait un capital de 240 000 francs avec une émission de 156 000 francs.

English translation: It is easy to see that, if the conversion succeeded for the whole loan, the state would have to allocate 7,800 francs to servicing the interest on the annuity certificates issued in exchange, instead of the 7,200 appearing in the budget; on the other hand, it would retire capital of 240,000 francs with an issue of 156,000 francs.

Annual accounts substantiate the operations’ effects: reduced amortization of the old 4% debt, a shift of interest payments toward 5% securities, and extinction of nearly three-quarters of the electoral-building debt. The epilogue supplies an irony. Restored confidence subsequently permitted a conventional conversion from 5% to 4½%, benefiting taxpayers but provoking institutional creditors whose income fell. Chenevière secured acceptance by protecting lenders against further conversion or premature amortization until 1880. Rappard’s case thus connects debt management to contractual expectations and political confidence: fiscal advantage depends not merely on coupon rates, but on capital valuation, repayment rights, and the timing of remedies.