Critically evaluate the role of the Eurodollar market in the development of the contemporary global financial system
Burn – 1999
* Eurodollar market – established in City of London in 1950s – considered progenitor of global financial system * Marked beginning of a movement away from restrictions placed by Bretton woods system on international capital movements and return to liberal internationalism and laissez-faire order of private and central bankers that ended with collapse of gold standard in 1931 * Direct consequence of market mechanism inevitably overcoming official obstruction or friction * Eurodollar was innovation of city’s merchant and overseas bankers, looking to finance rapid increase in international trade that took place at the end of the 1950s * Deliberate state action created conditions which allowed market to evolve and operate * Direct consequence of deliberate action taken by British state to re-establish the City of London as world’s foremost international financial centre * City’s position at the centre of the Eurocurrency system was direct consequence of it having evolved within an institutional framework established over 100 years earlier * Challenges simple state/market dichotomise and suggests that the origins of the Euromarkets can be better understood with reference to ‘governance of regulatory space’ – whether by states, markets or various associational forms INTRODUCTION
* Generally accepted that 1957 – new international money market in City of London – Eurodollar market – marked beginning of fundamental shift in international financial relations, from one directed towards national accumulation – based on regulation, to one that is responsive to demands of globall speculation and wholly unregulated * Lead directly to restoration of the city as the world’s leading international financial centre a decade later – global repercussions – re-establishing hegemony of the international financial market over states’ economic sovereignty and in the process undermining their ability to govern * Offshore currency, held and used outside the country where it acts as a legal tender and traded in market which exists outside the system of state-prescribed banking jurisdiction * Capital could escape offshore
* What a number of merchant and overseas banks in the city had begun to do in setting up the Eurodollar market was to run 2 books – one for domestic and the other for international operations * Responding to legal restraints imposed by Defence Finance Regulation of 1939 designed to protect Britain’s currency reserves by controlling the movement of capital out of the sterling area * Compartmentalised the British banking system into highly regulated domestic market and totally unregulated international market – offshore status to all banking activity segregated into the latter * Global foreign exchange transactions estimated at $5trn a day- over 450 x the daily value of international trade – passing through realm by 1994 * Founding stone of today’s international financial system and marks beginning of return to liberal internationalism and laissez-faire order of the private and central bankers that ended in ignominy in 1931 * Before BW system proper came into operation in 1958 created with explicit intention of preventing repeat of 1931 – calling for controls on all international capital movements to stop speculative capital flows from strangling international trade * Financial capital, subordinated by early post-war period to productive capital and locked into national compartments constructed around Fordist-welfare state concept was ultimately free again * By 1970 volume of private, footloose, Eurodollar deposits available for speculative currency dealings via foreign exchange markets was substantially greater than all the gold and dollar reserves held by govts and those funds made available to states through IMF to support currencies...
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