Dumb Networks and Smart Capital

Wriston, Walter B.


Emergence of the Eurodollar Market


Perhaps the beginning of a truly global market was triggered by America's desire to maintain price controls on interest rates. The Federal Reserve's Regulation Q, which prevented American savers from getting a fair return on their savings, also prevented foreigners from getting world rates on dollar deposits. Since most foreign countries did not have such interest rate controls and their banks routinely took foreign currency accounts, the conditions were ripe for the birth of the Eurodollar. The market gravitated toward London because of the City's reputation for maintaining a free market. Indeed when controls were put on sterling, the Bank of England left the Eurodollar market alone.

The advent and explosive growth of the Euromarket empowered by telecommunications permitted people around the world to get a fair return on their dollars, with the added benefit of keeping them outside the United States away from possible seizure. The market grew exponentially and has become the greatest floating pool of capital in the history of the world. This so-called stateless capital did not please everyone. A high official of the United States journeyed to London in 1979 to publicly urge at a meeting of the International Monetary Conference that reserve requirements be put on Eurodollars. At that public meeting the head of the Swiss National Bank arose and said that he for one would never do that as it would "disadvantage" the banks in his country. The British took a similar stance and so the market has grown to a point that it has taken on a life of its own.