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In the USSR, the right to issue bonds for domestic borrowing belongs solely to the state. The bond embodies a special form of obligation under civil law, one by which the state is the debtor and the citizen placing money at the disposal of the state is the creditor. The bonds currently in circulation are 3 percent lottery bonds, issued for a 20-year term in 1966. Income is paid to bondholders in the form of lottery winnings. The bonds are freely bought and sold by savings banks; their selling prices are set by the Ministry of Finance of the USSR, and they are purchased at face value. Various transactions relating to trusts, gifts, and bequests may also be carried out using bonds. Bonds may be presented for redemption throughout the period in which they are in force and during an additional grace period of 18 months. On expiration of this period, bonds that have not been presented for redemption lose their force. Bonds and cash winnings derived from them are tax exempt.
In the capitalist countries, bonds are issued both by joint-stock companies and by the state. As a form of paper security, bonds circulate freely through the capital market at a quoted price that is determined by their yield, by the general interest rate, and by overall factors of supply and demand. The state uses the capital mobilized through the sale of its bonds primarily to cover budget deficits that result from enormous nonproductive expenditures, above all expenditures on the arms race. The debt formed from the sale of bonds and the payment of interest is repaid primarily through taxes that are collected for the most part from the working people. The profits of joint-stock companies provide the source of the interest paid on their bonds.
O. I. LAVRUSHIN and A. IU. KABALKIN