The Economist has an article in its current edition about the birth of Eurobonds in 1963, which in many respects summarises the Treasure Islands chapter on the subject entitled “Eurodollar: the Bigger Bang.”
A middle section of the article kind of sums it all up:
“With some encouragement from the Bank of England, London became the centre of this new market. The effect was to revive a financial centre that had been suffering from the country’s economic troubles and the decline of the British empire, with its associated sterling area. The Eurobond market created lucrative work for the City’s accountants, lawyers and merchant banks, and it attracted foreign banks to set up branches in London.
This was the dingy, decaying city’s first step towards becoming the cosmopolitan capital of global finance that it is today. When exchange rates were allowed to float in the early 1970s London established itself as a currency-trading centre. More complex products like derivatives gravitated to it, too. Although Britain likes to lecture the world’s tax havens on their need for transparency and reform, its own financial sector owes its modern success to the country’s willingness to host an opaque, tax-evading capital market.”
I wouldn’t necessarily agree with everything else in the article: all this freeing up of global finance that accompanied the explosive growth of these markets did, ahem, coincide with lower growth, globally, rising inequality and an explosion in transnational crime, and the Economist’s usual prescription for less “red tape” and regulation is questionable.
The rise of the British increasingly unregulated financial centre in the City of London was accompanied by a generalised decline in Britain’s economy, relative to many others. Was this a coincidence? Well, there are many reasons for Britain’s subsequent economic malaises of course. But the Finance Curse analysis would strongly suggest that the two tendencies are related.
Still, this particular section that I’ve highlighted above is absolutely spot on.