The origin of the Eurocurrency market-that is, the market in currency trading outside their respective domestic economy. Several factors were behind their birth.
(1). The centrally planned economies were reluctant to hold bank deposits in the United States, so they put their dollar earnings on deposit in London. Gradually other European dollar holders did the same, a tendency that was particularly marked when the United States ran large balance of payments deficits.
(2). Balance of payments pressures made the United Kingdom government limit British banks' external use of sterling, so they had a strong incentive to develop business in foreign currencies.
(3). By the end of 1958 the main industrial countries had restored full convertibility of their currencies. The new freedom produced a surge of international banking business.
The growth of the Eurocurrency market was also stimulated by certain monetary regulations in the
General controls on the movement of capital also helped to boost the Eurocurrency markets. One example was the introduction, in 1965, of the Voluntary Foreign Credit Restraint Program (VFCR) in the
At the end of the 1960s and during the early 1970s the Eurocurrency markets, which had been located in Western Europe (and centered in
With the recent strong growth of domestic currency lending abroad, total international lending is now the most meaningful lending aggregate, and it encompasses Eurocurrency market activity.