YouSaid · the spoken record

Josh Younger

lines on the record: 67
first: 2023-06-19
most recent: 2023-06-19
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Yeah, so now there's a place to park your dollars. And if they pays a high enough interest rate and eurodollar issuers were not constrained by regulations that made it more expensive and harder to pay high interest rates on deposits in the U.S., they're unconstrained by regulatory limits on what they can pay. That's reg Q, that was reserve requirements, that was insurance premiums, FDIC insurance premiums, all these things that made it hard for U.S. banks to pay a higher rate of interest in London. They're completely unconstrained by it. And so they can attract those dollars. That means the gold is more likely to stay in the US, and that keeps the whole system functioning. It isn't entirely effective in the beginning when the Kennedy administration comes in, one of his senior advisors is, I think he said scared to death in his memoirs. He was very worried about this gold drain because he likened it to a run on a bank. Basically, you're going back to the bank and asking for the hard currency out of the bank. In this case, the bank is the United States government and the hard currency is the bank.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Becomes really increasingly desirable because the old Bretton Wood system that had been put in place after the war said a dollar, I said a dollar is a claim on the Fed or a claim on a commercial bank, but in Bretton Woods, it's also a claim on gold. So foreign official institutions, not anybody, but foreign official institutions can exchange their dollars for gold at $35 an ounce. It's a specified par rate on the dollar, but there's other need for gold other than just monetary reserves. I think the economy's growing. People need gold for other purposes. And so gold is trading in London at a little more than $35. So there's an incentive to sell goods to the US, get dollars in exchange for those goods, use those dollars to get gold for $35 an ounce, and then sell that gold for more than $35 in London. That's an arbitrage profit for foreign central banks. It's also a drain on the gold reserves of the United States.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“And it's growing, and they find it intriguing as a way to make the dollar useful offshore. And that's a way to get people offshore to hold dollars, to get the dollar proceeds of their trade, and then to keep those dollars in financial instruments.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so they have sort of their view evolves over time. They're initially a little intrigued. So in 1959 is when they kind of get wind of this. It was not obviously known to the broader world that this was happening. And so in 1959, the New York Fed sent a delegation. Alan Holmes and Fred Klopstock representing what was then kind of the markets division and the research division to basically do a fact-finding mission. And they go to London and continental Europe. So it's like the most phenomenal business trip. It's like a month in continental Europe and you can't go anywhere for a day, right? You have to go for a while. And so they come back and they say there's this continental dollar market is what they call it because that's the non-London Euro dollar market.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Specifically, these dollar deposits of foreign money in this context meant a dollar deposit in a London bank and not the U.S. branch, not the London branch of a US bank, but a London-based city bank. Midland bank is the most popular at the time. It's one of the largest. The Bank of England starts to get a little worried, but because in 1955, this market is doubling every three months.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“And in that environment, the pricing of those forwards was such that that was an arbitrage opportunity. It was free money to do this. It was related to the current account deficit. It was related to just the inefficiencies of starting a market after World War, you would imagine. There were lots of frictions there and we don't have computers. It was like, Joe, you were talking in an earlier episode. What did you do without computers? And so for a time, it was essentially free money for these banks to attract dollar deposits, issue the liability, buy something in sterling, and then hedge the foreign exchange risk. Starting in 1954, the economist starts occasionally talking about foreign money in London. It sounds kind of nefarious.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“That Tracy was raising, which is like it evolves organically, but there are key decision points that affect the outcome in very important ways. And so the first decision point is the London foreign exchange market is reopened. I think it was December 51, but it was roughly around 1951. And they kept the spot rate control, but they allowed FX forwards, which are in agreement to exchange currency at some point in the future. That market was allowed to float. So you could start exchanging dollars for sterling on a forward basis. That's effectively a loan where you collateralize a dollar loan with sterling. We have FX swaps today. And that enabled banks in London to accept dollar deposits. And on the asset side, they would buy sterling assets, but they would hedge the FX risk.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the pound, for example, was like a controlled exchange rate, which meant if you were to issue dollar deposits, you just had dollar liabilities and some non-dollar asset, you're warehousing this risk that at some point the head goes away.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Exchange rates are pegged and controlled because in the wake of the Second World War, there was no tolerance or volatility.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“So it was tied basically to trade because trade was denominated in dollars, but when it's all communist dollars, it has to be east-west trade. So trade crossing the Iron Curtain, which was small because both the Russians and the Americans were not terribly comfortable with a large volume of trade, and the Russians in particular had a policy of self-reliance. So they said, we don't want to need imports from the West to run our economy or society. We don't know how big that was. It was actually as of 1947 illegal to talk about economic data in the Soviet Union. It was a law passed that said this is like punishable by some extreme measure. Oh, wow. So we don't actually know the volume of this trade, but there's some evidence that it was there, that it was funded in part by trade finance was facilitated by BCEN to some extent. It's unclear when it started, but it's a very small market. The reason why there's no other applications is because at this time, there's really not a foreign exchange market.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“There we go. Yeah. And so the word about sanctions, which connects somewhat to today. Yes. And they moved their money from New York banks to a handful of banks specifically in France, London, and Belgium, because the local regulations allowed those banks to issue non-local currency deposits. Your local regulator has to allow this in the first instance. And in Paris in particular, there was a bank called basically the Commercial Bank of”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“And initially, that was basically what was done. So the definition of Eurodollar being deployed offshore is fairly specific. And the question is, when did that start? And we don't really know. We know roughly in the late 40s declassified CIA documents after the war ended. The Russians were moving money around because they were worried about a subsequent land war in Europe and they didn't want their funds to be frozen. Never mind the weirdness of like a Soviet invasion where they need dollars. I'm not sure why that would be necessary, but they were uncomfortable leaving money in New York. And so there were a handful.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Iss It's like, what gives? How can you do this? Yes, you can't just write a dollar and it's worth a dollar. Right, and expect it to be worth it.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it kind of reminds me of the beginning of the internet. So the internet, there's two versions of the internet there's the internet and the supernet. Everyone talks about how the internet was originally a defense department project and there was for a long time I'm not sure if there still is a separate internet that's an air gap with the actual internet which is the supernet which is the secret internet and so I want to go on the secret internet yeah so like euro dollars are not secret but they are separated from the us financial system in some sort of air gap type of way”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, well, there's a spectrum of dollars. So a dollar is a liability. The dollar, paper dollars in your pocket are a liability of the Federal Reserve system. The dollars that your bank issues you are a liability of that bank. And a euro dollar is a dollar-denominated liability of a non-U.S. bank. So something overseas. And that's been around for a while. So there were dollar-denominated deposits in Berlin and Vienna back in the 20s. They're fairly common in correspondent banking since then. So correspondent banking is somebody needs to use dollars versus, say, Deutsche Bank's in the 70s or the 50s or the 40s, they will have a bank account locally that has a bank account in the US. Their bank has a bank account. And it's just really a daisy chain back to the US. A euro dollar is unique in the sense that it is a dollar-denominated deposit that has an asset side, an asset in which it's deployed that is also offshore. So it's all disconnected. It's not fully reserved. Or in other words, it's deployed outside the context of the”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“I try to. It's fun to dig down. So I hope this isn't too much of a rabbit hole, but it is a very easy. We like rabbit holes.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I have to. I guess this is literally something I've always wanted to say, which is that these views are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.”
2023-06-19 · Odd Lots · Josh Younger on the Surprising Origins of Eurodollars and Petrodollars · IDENTIFIED FROM THE TRANSCRIPT · source