War in Ukraine: What are the war bonds Kiev uses to finance resistance to Russia

As the Russian invasion of Ukraine progresses, Ukrainian President Volodymyr Zelensky’s government races against time to find a way to fund the country’s defense.

The scenario is complex: the Ukrainians have fewer soldiers and a smaller arsenal, with a much smaller air capacity. In addition, the Russians have recently made a significant investment in modernizing their military power.

Adding to the problem is the fact that Ukraine’s economy is paralyzed by the war, with the government having little revenue and prices soaring.

In this context, the Ukrainian Ministry of Finance announced this week that it will use an old financial instrument to support its troops: the so-called “war bond”, a type of government bond issued in times of conflict.

“At a time of military aggression by the Russian Federation, the Ministry of Finance offers foreign citizens, companies and investors to invest in government military bonds,” the ministry said via its Twitter account.

As specified by the Zelensky government, each bond will have a face value of 1,000 Ukrainian hryvnias (BRL 170.50) and the interest rate “will be determined at auction”.

“The bond yields will be used to meet the needs of the Ukrainian Armed Forces,” the folder added.

In a meeting with foreign investors, the ministry also tried to calm the market, saying that the country will not fail to pay its existing debts, since after the invasion, investors were worried that the conflict would lead Kiev to default on its debt. For the same reason, in recent days there has been a sharp drop in the prices of Ukrainian treasury bonds in circulation.

The collection with the war bonds – which began on the first day of March – managed to raise about US$ 270 million (R$ 1.3 billion) in one day.

But what are these titles and how were they used historically?

What are?

War bonds — similar to other public debt securities — are debts that a certain State acquires with investors (individuals or legal entities) and which the country undertakes to repay within a certain period — with the corresponding interest.

In the case of war bonds, the money is used specifically to finance military operations during a period of conflict.

Typically, this type of investment offers a below-average financial return with a high percentage of risk because if the war is lost, the money invested can also be lost.

Thus, investors are often attracted by appealing to the patriotism and emotions of citizens who want to help defend their country.

Ukraine, for example, asked its nation for support “in difficult times”.

War bonds are also a means of controlling inflation by taking money out of circulation.

At what other times in history were they used?

It is not the first time in history that this financial instrument has been used to support the Armed Forces of a particular country in times of war.

The United States also issued these types of bonds to finance part of its defense spending during World War I and II.

Between 1917 and 1918, the US government issued so-called “Liberty Bonds”, creating a massive campaign to popularize the bonds through patriotic appeals. Even famous artists participated in the campaign, including Charles Chaplin and actress Ethel Barrymore. Today, it is believed that this financing tool was vital for raising funds for the country’s defense.

Then, in 1940, history repeated itself. Although the possibility of collecting taxes to finance the Armed Forces was evaluated, the bonds were finally used again —this time they were called “War Bonds” (war bonds) or “Victory Bonds” (victory bonds)— after the Japanese attack on Pearl Harbor in 1941.

The United Kingdom also issued war bonds in 1917. The propaganda to attract this type of investment said: “If you can’t fight, you can help your country by investing all you can in Government Bonds… Unlike the soldier, the investor does not take any risk”

The British media also joined the campaign. At the time, the British political magazine The Spectator wrote: “It is the people of Great Britain who must provide the money to finance the war.”

Canada also adopted war bonds as a way of pumping resources into its defense during World War I and II.

The country has managed to engage millions of Canadians through aggressive campaigns with volunteers offering so-called “victory bonds” door-to-door and to private companies.

“Bring the soldier home with the title of victory,” read one advertisement.