8 - Knowledge, Contestation and Authority in the Eurodollar Market, 1959–64

Summary

In Worlds of political economy, Martin Daunton (with Frank Trentmann) proposes a new political economy to explore ‘the large and often neglected universe of economic knowledge and practices, and the way the two have shaped each other’. This approach ‘supports the political repositioning of economic subjects’ and moves beyond ‘the political and institutional settings of economic life’ to analyse the economic knowledge deeply embedded in milieus, its contested nature, form of authority, and transnational dynamics. In this way Daunton reappraises political economy ‘as a system of ideas, value, meanings’.

This chapter explores the Eurodollar market, an offshore market in US dollars, from the perspective of this new political economy. Historians and international political economists regard the nascent international money market as emblematic of the re-emergence of global finance that evaded controls on capital mobility after the return to convertibility of Western currencies in December 1958, the ‘real post-war turning point for the foreign exchange market’. Schenk highlights the role of innovative bankers in the City of London in the mid-1950s in inventing Eurodollars. These bankers offered higher interest rates on foreign dollars in London than American banks handicapped by the Federal Reserve's Regulation Q – the limit on the interest payable on domestic deposits. Others, notably Burn, stress ‘the historic specificity of the British state’ in which the Bank of England (‘the Bank’) and financial elites embraced the Eurodollar market to promote the interests of financial capital by promoting the City of London's standing as an international financial centre.

Beyond the institutional and political approach, this chapter examines the production of knowledge in and about the Eurodollar market in its formative years by concerned practitioners as well as various observers, monetary authorities, and international organisations. In the absence of a centralised institution for collecting information on Eurodollar business they proposed various explanations for its operations and prospects. Their opinions evolved into contestations over the present and future of the nascent market. Each discourse had its own unspoken practices, norms, and visions for the Eurodollar. Thus, the challenges not only highlight divergent understandings of the market, they were part of the market-making process itself.