Odd Lots
The Hidden History of Eurodollars, Part 3: Spinning Out of Control
Jan 16, 2025
Lev Menand, a Columbia Law School professor, and Josh Younger, a policy advisor at the Federal Reserve Bank of New York, dive into the tumultuous history of eurodollars. They discuss the pivotal moment of Nixon's move away from the gold standard in the 1970s and its lasting impact on modern finance. The conversation also explores how geopolitical tensions, particularly from the 1973 oil embargo, reshaped global monetary policies and created economic turbulence. Their insights illuminate the complexities that define today's financial landscape.
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Quick takeaways
- The eurodollar market initially served as a stabilizing mechanism within the Bretton Woods system, but its growth led to regulatory complexities.
- Nixon's 1971 decision to abolish the gold standard transformed U.S. monetary policy and allowed the eurodollar market to thrive amidst volatility.
Deep dives
The Rise of the Eurodollar Market
The eurodollar market emerged as a crucial element in the global financial system post-World War II, significantly growing to over $10 trillion. Initially, the U.S. government utilized eurodollars to stabilize the Bretton Woods system, which was under pressure due to speculation against the dollar. The market began to take its modern shape, particularly during the inflationary shocks of the 1970s, which prompted pivotal shifts in monetary policy. By becoming a 'pressure valve,' the eurodollar market enabled the continued flow of dollar-based transactions without the constraints of the gold standard, allowing it to flourish during volatile economic times.
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