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The Eurodollar Revolution in Financial Technology: Deregulation, Innovation and Structural Change in Western Banking

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Financial Markets and Organizational Technologies

Abstract

Modern financial theories based on the economics of information suggest that banks arise as a response to existing frictions in the process of acquiring information and making transactions. Bank intermediaries ameliorate such frictions through brokerage (which enhances the matching of borrowers and lenders by overcoming information asymmetries) and portfolio transformation (banks acting as delegated monitors and providing liquidity insurance). The way banks perform these functions — their ‘financial technology’ — changed dramatically in the 1970s on a global scale. We define financial technology as a body of knowledge that specifies the whole range of activities creating economic value in financial intermediation, encompassing product, process and organizational technologies. Financial innovations occur in each of these areas and improve the efficiency with which intermediaries perform their basic functions by expanding opportunities for risk sharing, lowering transaction costs and reducing asymmetric information and agency costs (Merton 1995: 463).

In the world of finance, the impact of the Eurocurrency system is comparable to that of coke smelting in the development of iron and steel, the steam engine in the development of railways, and the computer in information processing.

T. M. Podolski, Financial Innovation and the Money Supply (London: Basil Blackwell, 1986): 113

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Authors and Affiliations

  1. Department of Economic History and Institutions, Universidad Carlos III Madrid, Spain

    Stefano Battilossi (Associate Professor)

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  1. Stefano Battilossi
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  1. Department of Political Science and Public Administration, University of Athens, Greece

    Alexandros-Andreas Kyrtsis (Professor of Sociology) (Professor of Sociology)

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© 2010 Stefano Battilossi

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Battilossi, S. (2010). The Eurodollar Revolution in Financial Technology: Deregulation, Innovation and Structural Change in Western Banking. In: Kyrtsis, AA. (eds) Financial Markets and Organizational Technologies. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/9780230283176_2

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