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Combining legal interpretation with political science analysis, this article highlights the competing ‘realist’ and ‘popular’ conceptions of sovereignty at stake in sovereign debt issues. It argues that these two dominant approaches do not exhaust the offerings of intellectual history, and considers an alternative, intermediate approach that emerged in the early 20th century and may be of relevance again today. In emphasizing the historical and theoretical contingency of the current sovereign debt regime, this article problematizes the assumption in international economics that only a narrow conception of sovereignty and a strict practice of debt repayment are consistent with a functioning sovereign debt market. The article contends that U.S. Chief Justice Taft’s foundational 1923 Tinoco decision, which grounds the current approach to sovereign governmental recognition, has been misinterpreted to support a purely functionalist or absolutist conception of sovereignty. It argues that a proper interpretation presents an intermediate or ‘rule of law’ framework that coincides with Taft’s domestic jurisprudence, and which provides an alternate conception of sovereignty for the current lending regime. Considering the economic and geopolitical context of Taft’s decision, the article also suggests that the disappearance of this intermediate approach may be related to the increasing consolidation of financial actors over the 20th century.