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London’s Eurodollar Rise Stemmed From Belgian, French Rejection

🏴‍☠️1/ If what I think is happening is really happening, then I can make some predictions. Especially about incoming European problems. But first an important side story, which also relates to the “special relationship”. What a lot of people don’t know is that when Minos Zombanakis, the father of the Eurodollar market, started looking for a hub for his offshore dollar operation in Europe, he originally hoped Brussels not London would be its base. That’s because Brussels was the home of NATO. This was not to be. As Andrew Hilton (city veteran) once told me, the Belgian central bank refused to give approval. Zombanakis next turned to Paris, but the BdF also rejected him. Finally, he turned to London. As Hilton tells the story “they [aka the BoE] didn’t put any obstacles in his way.” The rest, as they say, is history. London Eurodollar clearing became a trillion dollar business, over which Brexit fights would eventually be fought. In no time at all Stanley Yassukovich (at the time representing investment bank White Weld), as well as a number of other American banks, got approvals to set up euromarket operations in the square mile. Why did no other central banks want to say yes? Officially, they were concerned about financial stability. In reality, they knew what a dollar tap in their jurisdictions signified for their own monetary sovereignty. Their currencies would never be their own again, because European corps would always find it more cost effective to fund in dollars. This was all the more the case in any economy operating a dirigiste policy. They feared price discovery through competition. Eurodollars didn’t just bypass monetary control — they undermined the system of domestically captive finance that governments relied on, raising funding costs and exposing fiscal policy to external market discipline. It also translated to pressure on the gold price in ways that increasingly drained reserves. Which brings us back to the special relationship. Why did London say yes when nobody else would? Probably because it had no choice. It was just after Suez, which made the nature of capital flows and dependencies abundantly clear.