Price of the currencies of privatisation: the effect of different interest rates
Abstract
This article develops some formulas to calculate the difference between the price
of the currencies of privatization (so-called “junk money”) in the secondary market and their
face value. A matrix of results, based on different rules of payment of public debt, and several
costs of opportunity (rates of discount) is exposed. The results are useful to distinguish the
effect of differences between the rate of interest of the privatization currencies and the expected
free-market rate of interest from the effect caused by the lack of government credibility.
JEL Classification: H63.
Keywords: Public debt