Visualizing History

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Business Methods of Foreigners in China (1913)


Sunday Reads

MIT Visualizing Cultures

Since last weekend’s Sunday Reads went out, one news story has dominated headlines: the Taliban’s takeover of Afghanistan. From Bloomberg:

“After the longest war in U.S. history spanning 20 years, the Taliban is once again the dominant force in Afghanistan. As U.S. and NATO troops withdrew, a sweeping Taliban offensive saw city after city fall with little or no resistance from the American-trained Afghan military, culminating with the fall of Kabul and the flight of President Ashraf Ghani. The speed of Afghanistan’s collapse came as a shock to both NATO allies and the country’s civilian population, which fears a return to the dark days of brutal rule by Islamic fundamentalists that vastly diminished women’s rights…

In the U.S., the withdrawal of troops and the subsequent collapse of Kabul prompted condemnation from both sides of the political divide, with President Joe Biden facing fierce criticism for his continuation of former President Donald Trump’s withdrawal policy. The administration now faces the tough question of whether to engage with the new regime it struggled for so long to hold at bay, while trying to work out how it can help the thousands of Afghans that aided the American military.”

Horrifying scenes from Kabul airport and elsewhere around Afghanistan showed thousands of citizens trying to flee the country in order to escape Taliban rule. In addition to the humanitarian crisis in Afghanistan, however, a difficult monetary question has presented itself, too. Since this is a financial newsletter, we will focus on the financial and economic fallout of the Taliban’s takeover.

The Politics of Debt

The Taliban’s takeover of Afghanistan creates very difficult questions related to national finances. What happens to the country’s assets now that they are under Taliban control? How can foreign powers exercise financial pressure on the Taliban in order to exert influence? What happens to the debt of Afghanistan and neighboring countries?

The International Monetary Fund (IMF) responded quickly to the developments in Afghanistan. Bloomberg reported:

The International Monetary Fund said that the new government in Afghanistan is cut off from using fund reserve assets days before the nation was set to receive almost $500 million, depriving the Taliban of key resources.

The country has been in line to automatically receive new reserves, known as special drawing rights or SDRs, on Monday as part of a recently approved IMF plan to inject $650 billion of liquidity into the troubled global economy. While Afghanistan will still receive the assets, it won’t be able to use them because the new regime lacks international recognition, the IMF said…

The U.S. has frozen nearly $9.5 billion in assets belonging to the Afghan central bank and stopped shipments of cash to the nation, an administration official confirmed on Tuesday. Any central bank assets that the Afghan government has in the U.S. will not be available to the Taliban, which remains on the Treasury Department’s sanctions designation list, the official said.”

One of the major sticking points underpinning all these key questions and issues is the international recognition (or lack thereof) of Taliban rule. Whether or not the Taliban government has recognition as a legitimate government carries serious financial implications, which in turn will affect the innocent citizens of Afghanistan. In a country where 75% of public spending is financed by international aid (World Bank), there is a very thin line between cutting off finances in a way that hurts the Taliban, but not Afghani citizens. The country’s currency has already plummeted following this week’s events.

Taliban takeover drives Afghanistan's currency to its weakest on record

The goal of this week’s Sunday Reads is to provide some historical context on how these difficult financial questions have been addressed in previous episodes of regime changes, revolution, etc. So, let’s dive in!

The Bond Market and the Legitimacy of Vichy France

France Is Making Thousands of Vichy-Era Documents Public | Smart News | Smithsonian Magazine

Why This is Relevant:

This paper addresses the question of international recognition and finances after the rise of a new regime. Following the creation of the Vichy state during World War II, foreign investors had to determine whether the Vichy state was legitimate and would retain long-term sovereignty, or the original bonds issued by the French Republic were more creditworthy. Data on bond prices for bonds issued by the French Republic pre-WWII and those issued by Vichy France offer interesting insights on how investors perceived the legitimacy of Vichy France.


“During World War II, the spread between the 3 percent rentes and the Vichy government bonds reflected French investors’ perception of the shifting fortunes of war and the willingness of future post-war government to repay the debt issued by the collaborationist regime. Structural breaks in this spread do not always match with the dates of major military events but are more closely related to the political ones, emphasizing the struggle for legitimacy by rival claimants to power.”

Visualizing History:

Notable Quote:

“By the summer of 1944 trading had encountered many problems.16 Paris could not easily communicate with the rest of the country, and orders from the provincial bourses were hard to obtain. Paris stock prices took about one day to reach Lyon, and two to four days to arrive in Bordeaux. Furthermore, many sell orders were refused because intermediaries feared that certificates would be destroyed or greatly delayed in transport. Rumors about the creation of an Anglo-American occupation currency brought back inflation fears. The quick rise of buy orders, linked with the diminution of sell orders, lead to a very limited market, with frequent intervention by the Chambre syndicale.”

Regime Change and Debt Default: The Case of Russia, Austro-Hungary and the Ottoman Empire following World War One

Lenin proclaims Soviet power in Smolny Palace, Petrograd, 1917 | Vladimir Lenin Addressing Crowd | Know Your Meme

Why This is Relevant:

 This paper looks at three case studies for handling the issue of debt following a regime change post-WWI. This is all relevant for questions regarding Afghani finances under the Taliban regime.


“We consider the effect of the three largest regime changes following World War One on the foreign debt repayments of the succeeding regimes. The Bolsheviks repudiated the Tsarist debt, both external and internal in early 1918, and could not borrow internationally until the 1970s. The Austro-Hungarian successor states, with the exception of Romania, remained on good terms with lenders, and quickly gained access to foreign capital. However, the Ottoman successor states entered into protracted negotiations before accepting responsibility for a share of the debt, which meant they faced a lengthy delay before being able to re-enter the international capital market. We analyze these events using a game theoretical model of incomplete information, whereby capital markets can not directly observe a government’s ‘type’.”

Visualizing History:

Notable Quote:

“By 1914, the state debt of Russia had grown to approximately £930 million, or 50% of national income… On the 3rd of February 1918, all state loans, internal and foreign were annulled by the new Bolshevik government, a total amount of £3,385 million. The decree for the abolition of the National Debt contained 10 points, of which three directly pertain to their debt repudiation.”


From Finance to Fascism: The Real Effect of Germany’s 1931 Banking Crisis

Why This is Relevant:

Rather than assessing the economic fallout after a new regime seizes power, the author’s of this paper look specifically at how a financial crisis actually helped cause a regime change – in this case Adolf Hitler’s Nazi Party. The paper offers insights on how the financial and economic conditions of a country and its people can engender the types of uprisings and regime changes we are currently witnessing in Afghanistan.


“Do financial crises radicalize voters? We analyze a canonical case – Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933.”

Visualizing History:

Notable Quote:

economic distress induced by the banking collapse boosted the Nazi Party’s electoral fortunes… income changes – and especially those predicted by exposure to failing banks – have strong predictive power for Nazi voting. These effects were sharper where the Nazis could tap into pre-existing anti-Semitic sentiment. Exposure to Danat (led by a Jewish chairman) and Dresdner [bank] had the same economic effects – but only the former mapped strongly into more Nazi voting… Finally, we show that there were marked repercussions – the local persecution of Jews after 1933 was more severe where the banking crisis had caused the greatest economic harm.


Investing in the New Republic: Multinational Banks, Political Risk, and the Chinese Revolution of 1911

Why This is Relevant:

The economic issues stemming from China’s 1911 revolution are very similar to those of today in Afghanistan. Following the aftermath of this revolution, international financiers and foreign investors faced the problem of protecting their investment capital while also trying to avoid funding a new regime.


“This article examines the strategies employed by multinational banks to mitigate political risk following the onset of revolution in their host countries during the early twentieth century. It does so by exploring the activities of multinational banks in China during the Revolution of 1911 and its aftermath. This article first describes the measures that multinational banks took to maintain China’s credit on foreign bond markets after the outbreak of revolution. It then examines how these bankers curtailed political instability by first withdrawing financial support from both the Qing government and the revolutionaries and then providing financial assistance to the new Chinese Republican government.”

Visualizing History:

Notable Quote:

“in the early twentieth century multinational banks were willing to use the withholding and supply of foreign capital to influence political processes in their host country to manage political risk. Second, the financial measures that multinational banks could take to mitigate political risk during revolutions also are a new addition to the repertoire of financial risk management techniques of banks more generally that financial historians have begun to study. While this article has showcased the financial measures that multinational banks in non-European emerging markets could take to mitigate political risk, it needs to be pointed out that the long-term political development of China after the 1911 Revolution also shows that there existed important limitations to the ability of multinational banks to manage political risk and influence the larger political developments in their host countries.”