Proposal preview

The Euromarket and the origins of the financial globalisation, 1957~1973

The late twentieth century witnessed the re-emergence of global finance that transcended nation-states. The manifestation of ‘capital’ in waves of globalisation was the transnational network of finance that encouraged cross-border capital movements. While the increased interdependence of domestic financial market challenged economic ‘sovereignty’ of national governments, they also sought to capitalise the resurrection of finance. Simultaneously, the globalisation of finance accompanied the increased role of international organisations such as the Bank for International Settlements and the rise of market participants in setting rules and standards concerning the operations of financial activities – the governance of global finance. And this system eroded the ‘embedded liberalism’ of the Bretton Woods system, a compromise to retain the advantages of the free market system and grant autonomy to national governments for welfare state domestic policies.
The Euromarket locates at the intersection of these multi-faceted features of the global finance during the Bretton Woods system. The offshore market for U.S. dollars in different maturities whose emergence has been regarded ‘a quirk of history’ is inextricably linked with various public and private actors, national governments, and international organisations. It was a by-product of the U.S. Regulation Q, government control on capital flows, and the Cold War rivalry between the U.S. and the Soviet Union, from which innovative bankers exploited new business opportunities. Also, the misnomer ‘Eurodollar’ already indicates its transnational features. From this market, the City of London resurrected as the international financial centre in the 1960s. International bankers even from Communist countries introduced financial products in various maturities of Eurodollars which brought about the spatial and temporal transformation in the world of finance. The market for offshore finance and the integration of less-developed countries in the transnational network of finance that the Euromarket came to establish were reinforced by the Asian Dollar Market in 1969 and the recycling of petrodollars by international bankers after the oil crisis of 1973. Despite continued concerns about its destabilising effect on domestic monetary policy and speculation and corresponding efforts by monetary authorities to contain them, the new market led and symbolised the globalisation of finance, not to mention the destabilisation of the Bretton Woods system.
The existing scholarship on the Euromarket has paid attention to the City of London and the British government and international organisations. It also focuses on the competition among British and European banks against the so-called ‘American invasion’ rather than collaboration among international bankers in forging the global market. In consideration of transnational features of the Euromarket, this session aims to foster a dialogue which examines the early history of it under the Bretton Woods system from 1957 to 1973 from a global perspective. It discusses how the nascent market interacted with various market participants within and beyond nation-states, and the centre and periphery in the world economy. In doing so, this session attempts to shed light on broader questions regarding the origins of the globalisation of finance in the late 20th century – the making and remaking of economic sovereignty, the emergence of transnational financial community, and the role of non-Western countries in forging the wave of financial globalisation.

Open CfP
Organisers welcome participants and encourage graduate students and early career researchers to submit an abstract of maximum 500 words before 31 October 2017 to swk26@cam.ac.uk . Authors will be notified of paper acceptance before the end of the year.

Organizer(s)

  • Martin Daunton University of Cambridge mjd42@cam.ac.uk
  • Youssef Cassis European University Institute youssef.cassis@eui.eu
  • Edoardo Altamura Lund University edoardo.altamura@unige.ch
  • Seung Woo Kim University of Cambridge swk26@cam.ac.uk

Session members

  • Kazuhiko Yago, Waseda University
  • Edoardo Altamura, Lund University
  • Ioan Balaban, European University Institute
  • Seung Woo Kim, University of Cambridge
  • Jean-Baptiste Pons, Centre de Sociologie de l'Innovation
  • Maylis Avaro, The Graduate Institute Geneva

Discussant(s)

  • Martin Daunton University of Cambridge mjd42@cam.ac.uk
  • Youssef Cassis European University Institute youssef.cassis@eui.eu

Papers

Panel abstract

This session examines the history of the Euromarket, an offshore market for US dollars (Eurodollars, Eurocredits, and Eurobonds), which symbolises the re-emergence of global finance in the late twentieth century and the manifestation of capital in waves of globalisation. It locates the nascent market at the intersection of multi-faceted features of global finance during and after the Bretton Woods system. The Euromarket challenged the 'embedded liberalism' and nation-states by facilitating cross-border capital movements in the transnational network of finance and was inextricably linked with the various public as well as private actors, national governments, and international organisations. Also, it has many origins and transnational features from its beginnings. This session invites not only latest research of but also the politics and global history of the Euromarket to foster dialogue and shed light on broader questions regarding the globalisation of finance in the late 20th century.

1st half

Empire by invitation - An inexorable march toward global dollar hegemony

Maylis Avaro

The last political movements brought again the question of the sustainability of the dollar as leading international currency. Since the end of the Bretton Woods system, scholars (see Eichengreen 1997, Chinn & Frankel 2007) noted the dollar hegemony has steadily lost ground to the yen, the mark, the euro and the yuan. The internationalisation of the dollar started already in the interwar period (see Flandreau, Eichengreen 2009) but its hegemony became complete only under the Bretton Wood system. I show that its hegemony as a reserve currency was much faster than the literature states. Using national foreign exchange reserves in dollars, I measure the internationalisation of the US currency during the Bretton Woods era. Contrary to earlier arguments of the literature, I show that the core countries of the Bretton Wood system invested massively in dollar as soon as the late forties and were running a dollar portfolio for more...

The last political movements brought again the question of the sustainability of the dollar as leading international currency. Since the end of the Bretton Woods system, scholars (see Eichengreen 1997, Chinn & Frankel 2007) noted the dollar hegemony has steadily lost ground to the yen, the mark, the euro and the yuan. The internationalisation of the dollar started already in the interwar period (see Flandreau, Eichengreen 2009) but its hegemony became complete only under the Bretton Wood system. I show that its hegemony as a reserve currency was much faster than the literature states. Using national foreign exchange reserves in dollars, I measure the internationalisation of the US currency during the Bretton Woods era. Contrary to earlier arguments of the literature, I show that the core countries of the Bretton Wood system invested massively in dollar as soon as the late forties and were running a dollar portfolio for more than ten years when European currencies became convertible again. This allows to identify the major trends in the foreign exchange market. On the other hand, divergences in dollar investment prove that the United States presence in the European continent influenced strongly the choices of the economic actors. Central banks being key players of the international financial markets, understanding their early demand for dollar allows to shed a new light on the issue of the dollar shortage and on the dollarization of the European continent which is a key feature of this wave of financial globalisation.

The Italian origins of the Eurodollar market (1949-1960)

Ioan Achim Balaban

The Eurodollar market represents the catalyst of the revival of international finance under Bretton Woods. However, not much is known about the market's origins in the early 1950s other than it has been the result of cold war tensions and that the Midland bank pioneered the market in London. Based on the archival evidence, this paper examines another facet of the Eurodollar market: the role played by Italian banks. As I argue, Italian were among the earliest European banks to bid Eurodollar deposits. Triggering the banks' foreign exchange transactions was the interplay of two factors: domestic competition in the field of foreign trade finance and high-interest rates. The paper also provides a hypothesis as to where the money came from as well as a measurement of the market's size as of 1958. This, however, is tentative since statistical evidence on the size of the Eurodollar market is available only for...

The Eurodollar market represents the catalyst of the revival of international finance under Bretton Woods. However, not much is known about the market's origins in the early 1950s other than it has been the result of cold war tensions and that the Midland bank pioneered the market in London. Based on the archival evidence, this paper examines another facet of the Eurodollar market: the role played by Italian banks. As I argue, Italian were among the earliest European banks to bid Eurodollar deposits. Triggering the banks' foreign exchange transactions was the interplay of two factors: domestic competition in the field of foreign trade finance and high-interest rates. The paper also provides a hypothesis as to where the money came from as well as a measurement of the market's size as of 1958. This, however, is tentative since statistical evidence on the size of the Eurodollar market is available only for the 1960s.

Contested Financial Means-The City of London and the Euromarket in the 1960s

Kim, Seung Woo

This paper sheds light on the politics of the Euromarket, an offshore market for US dollars in different maturities, by analysing the way in which the City of London contested political implications of the nascent financial product. It is commonly understood that the Euromarket offered new business opportunities and facilitated the revival of the City. Beyond the economic benefit, Niall Ferguson considers the Eurobond market as a financial means for the integration of Europe. This paper contends that the Euromarket was projected 'against' the integration of Europe and contextualises it with contemporary issues regarding the City in the 1960s - the decline of sterling, the City in the British economy, the stagnated integration of European monetary union, and the debate regarding the UK's entry in the Common Market. By analysing discourses by City's opinion leaders and politicians, this paper argues for the contested nature of the Euromarket and its politics.

This paper sheds light on the politics of the Euromarket, an offshore market for US dollars in different maturities, by analysing the way in which the City of London contested political implications of the nascent financial product. It is commonly understood that the Euromarket offered new business opportunities and facilitated the revival of the City. Beyond the economic benefit, Niall Ferguson considers the Eurobond market as a financial means for the integration of Europe. This paper contends that the Euromarket was projected 'against' the integration of Europe and contextualises it with contemporary issues regarding the City in the 1960s - the decline of sterling, the City in the British economy, the stagnated integration of European monetary union, and the debate regarding the UK's entry in the Common Market. By analysing discourses by City's opinion leaders and politicians, this paper argues for the contested nature of the Euromarket and its politics.

2nd half

Speech is Silver and Communication is Golden - Central Bank Communication as a Non-Binding Form of Regulation of the Euromarkets in the 1960s

Jean-Baptiste Pons

Based on archival evidence, the paper addresses a key moment of the development of the Euromarkets and of their regulation by central bankers through non-binding communication in the early 1960s. Communication then aimed to influence practices in eurocurrency financing so that inter-banking financial crises neither destabilized international banking nor domestic economies. By adopting a socio-historical stance, the paper shows that the crises that lingered from 1963 to 1965 gave central bankers an unprecedented opportunity to take coordinated action from an international scale. As a result, the Bank for International Settlements and its expert committees progressively became in the 1960s and the 1970s a key source of information for the press on the state of international finance and circulated basic best practices to international bankers that dealt with eurocurrencies and instruments on the Euromarkets.

Based on archival evidence, the paper addresses a key moment of the development of the Euromarkets and of their regulation by central bankers through non-binding communication in the early 1960s. Communication then aimed to influence practices in eurocurrency financing so that inter-banking financial crises neither destabilized international banking nor domestic economies. By adopting a socio-historical stance, the paper shows that the crises that lingered from 1963 to 1965 gave central bankers an unprecedented opportunity to take coordinated action from an international scale. As a result, the Bank for International Settlements and its expert committees progressively became in the 1960s and the 1970s a key source of information for the press on the state of international finance and circulated basic best practices to international bankers that dealt with eurocurrencies and instruments on the Euromarkets.

A Pericentric View of the Euromarket- Mexico and External Borrowing, 1960s-1980s

C. Edoardo Altamura

The Euromarket is credited as one of the most remarkable innovations in recent financial history. Its history has been the object of several academic studies with London or New York bankers as the main actors. This paper wishes to broaden current perspectives on the Euromarket by including the point of view of a large user from the Global South: Mexico. Between the 1960s and the 1980s, Mexico became the largest borrower on the Euromarket. Relying on recently disclosed primary sources from the Bank of Mexico, the paper will trace the increasing reliance of Mexico on external borrowing starting from the presidency of Diaz-Ordaz to the debt rescheduling of the 1980s. The paper will show why and how foreign credits became a crucial element of Mexico´s economic policy starting from the second half of the 1960s, the expansion in the 1970s and the debt rescheduling process of the 1980s from the...

The Euromarket is credited as one of the most remarkable innovations in recent financial history. Its history has been the object of several academic studies with London or New York bankers as the main actors. This paper wishes to broaden current perspectives on the Euromarket by including the point of view of a large user from the Global South: Mexico. Between the 1960s and the 1980s, Mexico became the largest borrower on the Euromarket. Relying on recently disclosed primary sources from the Bank of Mexico, the paper will trace the increasing reliance of Mexico on external borrowing starting from the presidency of Diaz-Ordaz to the debt rescheduling of the 1980s. The paper will show why and how foreign credits became a crucial element of Mexico´s economic policy starting from the second half of the 1960s, the expansion in the 1970s and the debt rescheduling process of the 1980s from the perspective of Mexican officials.

Petrodollar Recycling- a longer perspective

Kazuhiko YGO

The Oil Shock during the 1970s brought about a huge flow of dollars, including "petrodollar recycling," which took place in the Euromarket. The commonly agreed story over "petrodollar recycling" was that of the role played by international banks in the Euromarket to recycle this large amount of dollars, contrasted with the negative role of government regulations. However, recent historical studies on the Oil Shock suggest a new insight into the impact of the "petrodollar recycling": the Oil Shock was part of the broader process of change that emerged earlier and lasted longer. Inspired by the above views, and depending upon archival studies on the OECD, BIS as well as the United Nations, this paper attempts to shed new light on existing views on "petrodollar recycling" from a longer perspective. The paper puts focus on the role of international liquidity and the interaction between the two sides of petrodollar recycling: the...

The Oil Shock during the 1970s brought about a huge flow of dollars, including "petrodollar recycling," which took place in the Euromarket. The commonly agreed story over "petrodollar recycling" was that of the role played by international banks in the Euromarket to recycle this large amount of dollars, contrasted with the negative role of government regulations. However, recent historical studies on the Oil Shock suggest a new insight into the impact of the "petrodollar recycling": the Oil Shock was part of the broader process of change that emerged earlier and lasted longer. Inspired by the above views, and depending upon archival studies on the OECD, BIS as well as the United Nations, this paper attempts to shed new light on existing views on "petrodollar recycling" from a longer perspective. The paper puts focus on the role of international liquidity and the interaction between the two sides of petrodollar recycling: the developed countries and the OPEC.