Chokepoints: American Power in the Age of Economic Warfare

by Edward Fishman

A second crack in the façade stemmed from backlash to the constraints on cross-border capital movements. In London during the 1960s, a new market emerged in which firms could deposit, borrow, and exchange dollars. As it was based outside the United States, the so-called Eurodollar market was free from regulation and thus gave banks and multinational corporations an avenue to evade the strict capital controls of the time. Although the Eurodollar market was something of a Wild West, the British government embraced it as a way to preserve the City of London’s role as a world financial center. The U.S. government could have taken steps to shut the market down, but Washington also ended up supporting it out of its own self-interest: the Eurodollar market increased the appeal of dollar holdings, effectively enticing foreigners to finance American deficits, which were growing rapidly amid the Vietnam War. It didn’t matter that the Eurodollar market undermined Bretton Woods; the prospect that Washington could run big deficits and avoid spending cuts trumped all. In a manner that today’s cryptocurrency enthusiasts could only dream of, the Eurodollar market started as an unauthorized monetary experiment and then evolved, with the blessing of the U.S. and British governments, into a piece of critical infrastructure for the world economy. Gradually, the capital controls of Bretton Woods eroded, and money began moving across borders more freely.