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Bradlee Speice 2020-04-12 21:58:31 -04:00
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_posts/2020-04-02-pandemic-bonds.md
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@ -71,14 +71,20 @@ Assuming the die is fair, and that we play this game for a very long (infinite)
With that out of the way, what the heck are pandemic bonds?
The [Pandemic Emergency Financing Facility](https://en.wikipedia.org/wiki/Pandemic_Emergency_Financing_Facility)(PEF), also known as a "pandemic bond", is a very special financial contract. The basic structure of the bond is simple:
The [Pandemic Emergency Financing Facility](https://en.wikipedia.org/wiki/Pandemic_Emergency_Financing_Facility)(PEF), also known as a "pandemic bond", is just a special financial contract. The basic structure of the bond is simple:
- People give the World Bank money.
- If there is no pandemic:
- Every month, the World Bank pays interest on that money
- Every month, the World Bank pays (a lot of) interest on that money
- On July 15, 2020, all the money is given back
- If there is a pandemic:
- No further interest is paid on the money
- The World Bank gets to keep the money
If you're interested in more details, the [bond prospectus](http://pubdocs.worldbank.org/en/882831509568634367/PEF-Final-Prospectus-PEF.pdf) has you covered; interest rates, definition of what a "pandemic" is, etc.
If you're interested in the specifics, check out the [bond prospectus](http://pubdocs.worldbank.org/en/882831509568634367/PEF-Final-Prospectus-PEF.pdf) for interest rates, a definition of "pandemic", and so much more.
But the most interesting thing in this contract is how *both sides (lenders and the World Bank) benefit*.
We'll look at this from the World Bank's perspective first. The World Bank is concerned about [the possibility of a pandemic](https://www.youtube.com/watch?v=6Af6b_wyiwI).
If you're lending money to the World Bank, this is a potentially great investment opportunity. Sure, there's a potential you lose everything, but *assuming a high enough interest rate*, this is a hard deal to pass up.