Financial globalization as positive integration: monetary technocrats and the Eurodollar market in the 1970s

Abstract

International political economy (IPE) has explained financial globalization as the result of states deciding to open up and liberalize domestic financial systems. Complementing this 'negative integration' view, we present a theory of financial globalization during the 1970s that emphasizes the importance of 'positive integration.' Credit money systems are characterized by public-private infrastructural entanglements, the management of which require substantial institutional work by monetary technocrats, both at the domestic and at the international level. To illustrate our theory, we trace the expansion of the Eurodollar market during the 1970s. Drawing on archival records from the 'Standing Committee on the Euro-currency Market' at the Bank for International Settlements, we show how this group of G-10 central bankers sought to elevate the management of infrastructural entanglements from the domestic to the international level. By ensuring that the Eurodollar market did not interfere with domestic monetary governability, while seeking to provide protection for issuers of Eurodollars, monetary technocrats helped establish the institutional infrastructure for the expansion and globalization of the offshore US dollar system.

Critical macro-finance: A theoretical lens

“…Take Europe. If the story of European finance in the 1960s and 70s was the rise of the Eurodollar markets (Braun et al, 2020), then the story of the 1990s was the Americanization of national financial systemsthe adoption of US repo-sovereign liquidity structures -after a short-lived resistance from the German and British central banks. The Bundesbank worried that repos fed speculative finance.…”

The evolution of the Offshore US-Dollar System: past, present and four possible futures

“…Hence, as the Bretton Woods System became increasingly dysfunctional, the emerging Offshore US-Dollar System provided an institutional alternative that had not been centrally planned but evolved in an evolutionary process. Whether the rise of the Offshore US-Dollar System was a cause for or an effect of the demise of the Bretton Woods System is subject to ongoing contestation among scholars (Braun et al, 2020;Burn, 2006;Eichengreen, 2008;Helleiner, 1994;Mehrling, 2016). Figure 3 depicts the institutional evolution of the USD monetary area, located at the apex of the Offshore US-Dollar System, to sketch the most important steps in the emergence of offshore USD creation.…”

Taking Europe seriously: European financialization and US monetary power

“…Europe's financialization had therefore established, in Shin's words, 'a pivotal role for European banks in determining financial conditions in the United States' (2011, p. 9). In part, this was not a new development (Braun, Krampf and Murau, 2020). Central bankers in the late 1970s first recognized limits on US monetary policy via offshore dollar creation when they briefly contemplated controls on banks' international lending, believing that this lending undermined the anti-inflationary effects of tightening monetary policy (Kaminska, 2016;Mayer, 1979).…”