Euro-Market Growth, Risks in International Bank Lending and Domestic Monetary Management

Abstract

The rapid growth of international bank lending and the spectacular expansion of the Euro-currency market have fascinated financial analysts and academics, international traders and commercial bankers as well as central bank and government officials for many years. Outside observers, market participants and representatives of public sector institutions naturally view these world-wide financial trends from differing micro- and macroeconomic angles. Judgements and opinions on the Euro-system therefore tend to differ quite substantially depending on individual commentators’ doctrinal convictions, their national or business interests, and their specific public responsibilities. The present paper addresses concerns and issues debated among major central banks since the late 1970s, after commercial banks’ foreign claims and the gross and net volumes of the Euro-currency market had dramatically expanded at annual average rates of 20 to 30 per cent for about a decade (Annex 1). The author thus views the evolution of the international banking system from a monetary policy perspective.