Abstract

"Unintentionally Co-creating the International Financial System? Soviet-owned Banks, Eurodollar Markets and Socialist Financial Infrastructure During the Cold War"

Marcus Dietrich, Heidelberg Center for American Studies (mdietrich@hca.uni-heidelberg.de)

Scholarship on the origins of the Eurodollar markets – financial offshore markets emerging in Western Europe in the 1950s – often highlights a paradox: The first Eurodollar deposits were, reportedly, placed by communist owned banks in the West: The Moscow Narodny Bank (MNB) in London, and the Banque Commerciale pour l’Europe du Nord (BCEN) in Paris. Paradox turns into irony when one considers the BCEN’s and MNB’s operations resulted in what Catherine Schenk described as “arguably the most dramatic innovation in the post-war period” – and a global money market worth over $900 billion by 1980.

Despite an abundance of literature on Eurodollar markets, little is known about the nature of these seemingly contradictory socialist banks. This contribution draws on novel archival material from the Banque de France and the Bank of England to investigate the role of the MNB and the BCEN as financial intermediaries navigating the liminal space between socialism and capitalism during the Cold War, in the process shaping both systems. Their foreign currency operations on behalf of socialist countries with Western commercial banks in the 1950s were designed to circumvent economic and monetary barriers between capitalism and socialism, but incidentally, they co-created the core markets of the capitalist international financial system. From the 1960s onwards, they made use of the very offshore money markets that they had originally played a key role in creating to channel hard currency funds into the socialist East and facilitate cross-bloc economic exchange. While the socialists thus shaped international offshore finance, their growing reliance on Eurodollar-denominated debt led to structural dependencies on Western banks and governments. The BCEN and MNB thus challenge the Cold War dualism of Socialism and Capitalism divided by an Iron Curtain. The East was not a passive recipient of the forces of Western finance but drove their own unequal and peripheral integration, and co-created the international financial system from within.