This paper deals with the question whether the City of London acted as an offshore financial centre since the Second World War. This in turn is linked to the specific role London played in the liberalisation and deregulation of international finance which took place at an increasing pace since the 1970s. Special attention is paid to the rise of the so-called euromarkets and why this development was tolerated by the Bank of England.
Table of Contents
1. The role of London as an offshore financial centre in the liberalisation of international finance since the Second World War
Research Objectives and Key Themes
This essay explores the historical development of London as a preeminent offshore financial centre and its pivotal role in the global liberalisation of financial markets since 1945. It examines the transition from the post-war Bretton Woods system of capital controls to a highly deregulated, interconnected global financial environment, specifically analysing how the "Lockean" state/society complex and the unique institutional status of the Bank of England facilitated this transformation.
- The evolution of the Bretton Woods system and its subsequent collapse.
- The emergence and function of the Eurodollar market in the City of London.
- The relationship between state sovereignty, the "Lockean" complex, and financial deregulation.
- Key structural trends in global finance: disintermediation, securitisation, and the rise of institutional investors.
- The shift of economic power from sovereign states to private financial actors.
Excerpt from the Book
The emergence of the so-called ‘Eurodollar market’ in London in the late 1950s
The emergence of the so-called ‘Eurodollar market’ in London in the late 1950s marked the first episode towards increased liberalisation of the international financial markets. The City of London – the financial district located around the Bank of England – became an ‘offshore’ financial centre in the respect that it was made possible to conduct non-sterling transactions nearly completely without state regulations. Most of the transactions were carried out in dollars, therefore the term ‘Eurodollars’ emerged. However, this was also possible with other currencies, such as the Swiss franc or the Deutschmark, hence a more general term is ‘Euromarkets’.
This loophole was first discovered by merchant banks from the City of London, who searched for alternative sources of finance, because the sterling-crisis of 1957 had cut them off their traditional ones. They found their new way of financing in non-resident currencies – the Euromarkets were born. This innovative way of financing, developed by the merchant banks, was only possible by the ‘abjuration’ of sovereignty by the British state. The fact that the British state placed all transactions in foreign currencies outside the oversight of British authorities – mainly exchange rate and reserve regulations – created a paradoxical situation, because as these transactions were carried out within British territorial boundaries, they were protected from regulation by any other state. In fact, this decision of the British authorities had the effect, that these transactions were outside the regulation of any state.
Summary of Chapters
1. The role of London as an offshore financial centre in the liberalisation of international finance since the Second World War: This chapter analyzes the trajectory from the post-WWII regulated Bretton Woods era to the contemporary era of globalized finance, highlighting the City of London's emergence as a regulatory vacuum that facilitated this shift.
Keywords
London, offshore financial centre, Bretton Woods, Eurodollar market, deregulation, liberalism, state sovereignty, Lockean state, Bank of England, capital controls, securitisation, disintermediation, financial globalisation.
Frequently Asked Questions
What is the core focus of this essay?
The essay examines how London transformed into a global offshore financial hub and how this role catalyzed the broader liberalisation of international financial markets following the Second World War.
What are the central thematic fields covered?
The central themes include the transition from regulated post-war markets to globalised neoliberal finance, the institutional role of the Bank of England, and the shift of power from sovereign states to private market actors.
What is the primary research objective?
The primary objective is to explain the origins of the Euromarkets and analyze how the interplay between the British state and private financial actors contributed to the dismantling of capital controls.
Which scientific method is utilized?
The study employs a historical and political-economy approach, utilizing the "Lockean state/society complex" framework to analyze the specific regulatory environment of the City of London.
What does the main body address?
The main body addresses the collapse of the Bretton Woods system, the rise of the Eurodollar market, the emergence of neoliberal policies, and structural market trends such as securitisation and the herd effect.
Which keywords best characterize this work?
Key terms include offshore finance, deregulation, Eurodollars, state sovereignty, neoliberalism, and global financial volatility.
How did the "Lockean" state concept influence the development of the City of London?
The "Lockean" concept describes a state structure where civil society—specifically capital interests—is prioritized over public regulation, allowing the Bank of England to maintain a unique, private-interest-driven autonomy that fostered the Euromarkets.
Why was the collapse of the Bretton Woods system significant for transnational capital?
The collapse marked the transition from state-managed currency systems to a market-driven environment, liberating transnational capital from tight regulatory control and shifting power toward global financial actors.
- Quote paper
- MA Internationale Beziehungen Jan Fichtner (Author), 2004, The role of London as an offshore financial centre in the liberalisation of international finance since the Second World War, Munich, GRIN Verlag, https://www.grin.com/document/33971
