The “Risk-Free” Rate of Return in the Politics of Global Finance: The State As Financial Asset, Foundation of Value and Sovereign on Behalf of Creditors

This paper analyzes the notion of risk-free rate of return as it is present in professional financial practice and in regulatory debates. Using pragmatist approaches in political anthropology and in the anthropology of money and finance, the paper will map the circulation of this concept through three entries, which imply different institutions and practices, connected through common narratives, found in manuals, financial practice, regulatory frameworks and the press, in an assemblage with specific contradictions, fragmentations and taboos.

First, in financial formulas, the concept presupposes that state sovereignty will ensure that taxes are used to pay creditors, establishing a financial, moral and political hierarchy between states, which has shifted in Europe in recent years. Second, the concept defines the minimum return that an activity must offer in order to be even considered as a financial asset. The concept works not only as a stabilizer of the definition of “financial value” itself, but also as a principle of discrimination in the allocation of credit by the finance industry. Finally, the concept also refers to concrete assets, such as AAA rated securities, which must be held by financial institutions according to regulation, and the volumes of which fluctuate, creating important regulatory issues.

The paper will be to spell out the different temporalities and institutions that are brought together by the concept in its different uses, their connections and disconnections, as a way to question the global political narrative that it allows for, and the alternatives that it precludes.