Bearer Bonds

Bearer Negotiable Instruments
These are non-cash monetary instruments which may contain the instruction ‘pay to the bearer’.

Investing in Bearer Bonds

When you invest in bearer bonds, you are lending money to a company or a small business (sole trader). In return, you get cumulative interest payments, called coupon payments. If you hold the bond until maturity, you get back the face value of the bond plus the accumulated interest.

Bearer bonds have a high degree of risk, as if the company or sole trader goes out of business, you may not get your principal back or the accumulated interest. To compensate for this, bearer bonds usually offer a higher interest rate than other debt securities.

However, bearer bonds issued from a company are still less risky than shares. This is because if a company collapses, bond holders, like preference shareholders, are paid out before ordinary shareholders.

A bearer bond issued to the person who originally purchased the bond from the issuer and whose name and address appears on the bond, may not be the current bearer.

Bearer Bond usual characteristics

  • Face values starting from $5,000 up to $100,000 or more per bearer bond;
  • Transferability;
  • The issuer’s name;
  • The payee’s name and/or ‘pay to the bearer’, or simple ‘pay to the bearer’, where the payee elects to remain nameless;
  • An interest (coupon) rate, usually cumulative;
  • Anti-counterfeiting encryption;
  • A maturity date.

Where the current bearer’s name does not physically appear on a bearer bond, it’s nearly impossible to recover such bonds if they’re lost or destroyed. This is why we recommend that bearer bonds should be locked away inside a safe or other secure location.

Bearer bonds are easily transferable anonymous debt instruments that hold certain advantages over other forms of BNI’s.

Bearer Negotiable Instruments (BNIs) include: Cheques, promissory notes, traveller’s cheques, bearer bonds, money orders, postal orders and other negotiable instruments. The bearer is the person in possession of the BNI.

The anonymous Bond

Bearer Bonds are government or corporate issued debt instruments that differ from traditional bonds, in that they’re unregistered as investment securities, consequently no records exist that list the owners’ names.

As a result, whoever physically holds the paper on which the bond is issued, is the presumed owner, giving him or her a greater measure of anonymity than more common bond offerings present.

But since no investor names physically appear on bearer bond papers, it’s nearly impossible to recover such bonds if they’re lost or destroyed.

A short history

In the United States, bearer bonds were first introduced in the late 1800s, to fund Reconstruction during the post-Civil War era.

These investments proved instantly popular, because they could be easily transferred and because millions of dollars could be issued using relatively few certificates, simplifying transactions.

Europe and South America soon followed suit, issuing similar bonds for use in their own financial markets.

The risks

There is no registered owner’s name printed on the face of a bearer bond, historically allowing interest and principal to be paid without question, to anyone tendering a bond certificate.

Prior to restrictions imposed in 2010, a bearer bond holder need only submit certificates to the issuer’s agent at the maturity date to anonymously cash them for face value. 

While expeditious, this practice holds intrinsic risk, because if the bond was stolen, there is no way of tracing the bond back to its rightful beneficiary.

No registered owner

There is no registered owner’s name printed on the face of a bearer bond, historically allowing interest and principal to be paid without question, to anyone tendering a bond certificate.

Prior to restrictions imposed in 2010, a bearer bond holder need only submit certificates to the issuer’s agent at the maturity date to anonymously cash them for face value. 

While expeditious, this practice held intrinsic risk, because of the bond was stolen, there was no way of tracing the bond back to its rightful beneficiary.

Risk of failure to honour

These instruments are also problematic if bond issuers fail to honour their obligations to pay the interest and principal payments.

In such circumstances, if investors elected to pursue legal action in court, they are required to surrender their ownership anonymity, thus defeating the purpose of buying such bonds in the first place.

Criminal use

Bearer bonds have historically been the favoured financial instrument for money launderers, tax evaders and others looking to conceal business transactions. In fact, bearer bond fraud has been a frequent subject in literature and Hollywood films.

In the 1925 classic novel The Great Gatsby, the mysterious titular main character schemed to sell bearer bonds of questionable origin. And in late 20th century movies Beverly Hills Cop, Die Hard, Heat, and Panic Room, villains have stolen millions of dollars in bearer bonds.

Anonymous Debt

Bearer bonds are easily transferable anonymous debt instruments that hold certain advantages over other forms of currency.

But these very attributes have made bearer bonds a popular vehicle that criminals exploit, to circumvent the law. As a result, the future of bearer bonds remains uncertain, and U.S. issued bonds are marching towards extinction.

The future for Bearer Bonds

The use of bearer bonds to dodge taxation became more popular after World War I. Their illegal use persisted until the Tax Equity and Fiscal Responsibility Act of 1982, which outlawed new issuance of bearer bonds in the United States. Interestingly, eurobonds are still issued as electronic bearer bonds, and U.S. corporations are able to issue their bonds into the European market, in that form.

Key points

  • Bearer bonds are a fixed income instrument whose certificates do not contain the holder’s personal information.
  • Due to the anonymity of bearer bonds, it’s impossible to determine their rightful owner if they’re stolen,
  • Bearer bonds are frequently used by dishonest individuals, who choose not to declare their gains on these investments, in an effort to evade taxes.

BearerTokens.com – (a conceptual crypto idea)

In theory, bearer tokens (issued on the blockchain) could be a utility token to enable users to interact with a business’s services. A small business could create bearer tokens so business customers could ‘pay it forward’ for goods & services to help keep businesses afloat during Covid-19.

Bearer tokens could also be issued by any business as a means of funding the business during downturns such as the current global corona virus pandemic. The coupon (interest) rate of the bearer token could be at a discount (of say 10%) on purchases, for customer loyalty.

Bearer tokens of various denominations could be issued (sold) from five dollars ($5.00), ten dollars ($10.00), through to say one hundred ($100.00) or more to customers and supporters of a business.

The idea behind bearer tokens is to enable friends, supporters and customers of a business to provide a small amount of financial support to help support the business during this unprecedented and difficult trading period by buying bearer tokens from the business they wish to support.

These bearer tokens provide a way of funding a business through difficult trading periods and can be redeemed (by the bearer), at the business they were issued from in return for goods or services to the value of the token.

Bearer Tokens would be negotiable ‘currency’ in the hands of whoever is the bearer. There are probably hundreds of other uses for Bearer Tokens that no one has even thought of.

Anyone wishing to contribute further thoughts or ideas or would like to collaborate with us on this project, are welcome to drop us a line.

Learn how to create a Ethereum Token!

Keep those brilliant ideas flowing!

Wealth is created by solving problems. If you solve a million-dollar problem, it will make you millions! .​

 

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