The Eurobond Market and the Rise of Global Payment Infrastructure, 1963-1974

The emergence of the Eurobond market in 1963 marked a transformative moment in the history of international finance, introducing an innovative funding mechanism that simultaneously exposed critical weaknesses in the global payments infrastructure. Unlike domestic bond markets, where payment flows were supported by well-established systems, Eurobonds required entirely new solutions for the settlement of primary issuances and the ongoing processing of coupon payments. These cross-border transactions had to be executed without the backing of any national central bank or pre-existing international clearinghouse, presenting unprecedented operational and logistical challenges. This paper examines how the regulatory and institutional environment of the 1960s and early 1970s, particularly U.S. capital controls and European tax measures, catalyzed the creation of new, market-driven payment and clearing systems that remain integral to today’s global financial architecture.

At its core, the development of the Eurobond market was a response to the growing demand for flexible funding mechanisms that transcended national boundaries. However, the absence of a centralized infrastructure for cross-border payments rendered early operations cumbersome and costly. Settlement relied on the physical delivery of bearer bonds, a practice fraught with inefficiencies and risks. Payment delays were common, contributing to significant liquidity constraints for both issuers and investors. Moreover, the lack of standardized payment practices and clearing procedures led to wide bid-ask spreads of 1–2% and underwriting costs that exceeded 1.25% of the total issue size. These inefficiencies were compounded by the fragmentation of the securities selling networks, which forced market participants to rely on large, unwieldy underwriting syndicates to distribute relatively small bond issuances.

The regulatory environment of the 1960s further complicated these dynamics. U.S. measures such as the Interest Equalization Tax (1963), the Voluntary Foreign Credit Restraint Program (1965), and Mandatory Direct Investment Controls (1968) aimed to curb capital outflows but inadvertently accelerated the growth of the Eurobond market. These policies effectively pushed U.S. borrowers and investors to seek financing and investment opportunities outside the domestic financial system. Meanwhile, European regulatory measures, including Germany’s imposition of a 25% Coupon Tax on domestic bonds, created additional incentives for market participants to operate within the nascent Eurobond market. These constraints not only highlighted the inadequacies of existing payment systems but also underscored the urgency of developing robust, alternative mechanisms capable of facilitating cross-border transactions.

The market’s response to these challenges demonstrated remarkable adaptability and capacity for institutional innovation. Key actors in the financial sector took the lead in developing solutions that would redefine the landscape of international payments. The establishment of the Association of International Bond Dealers (AIBD) in 1969 provided a forum for market participants to coordinate their efforts and set standardized payment practices and settlement procedures. These standards not only reduced transaction costs but also enhanced market stability and investor confidence. Even more transformative was the creation of centralized clearing systems. Morgan Guaranty Trust’s introduction of Euroclear in 1968 marked a watershed moment in the history of cross-border payments, offering the first centralized settlement system tailored to the needs of international securities transactions. Euroclear’s success spurred the establishment of CEDEL in 1971, a European-led initiative that further expanded the market’s infrastructure and reflected the growing influence of banks in shaping the global financial system.

The infrastructure developed between 1963 and 1974 proved to be both innovative and enduring. The systems and practices pioneered in response to the Eurobond market’s unique demands laid the groundwork for the modern architecture of global securities settlement. Today, organizations like Euroclear and Clearstream (formerly CEDEL) remain central to the functioning of international financial markets, while the governance structures established by the AIBD and its successor, the International Capital Market Association (ICMA), continue to influence market behavior and regulatory policies.

This paper argues that the history of the Eurobond market provides critical insights into the evolution of cross-border payment systems. First, it demonstrates how regulatory constraints can act as a powerful catalyst for private-sector innovation, prompting the development of institutional arrangements that address gaps in the existing infrastructure. Second, it highlights the ability of market participants to selforganize and create stable payment and clearing mechanisms, even in the absence of state-led initiatives. Finally, it underscores the long-term impact of early institutional choices, illustrating how decisions made during a specific historical period can shape the trajectory of global financial markets for decades to come. As policymakers and financial institutions navigate the challenges of an increasingly integrated global payments system, the lessons of the Eurobond market remain highly relevant. The interplay between regulatory constraints, market innovation, and institutional development offers a compelling framework for understanding how global payment infrastructures evolve. By examining the historical roots of today’s systems, this paper contributes to a deeper understanding of the dynamics that underpin international finance and underscores the critical role of the bond market in driving the evolution of cross-border payment system.

Sebastian Alvarez is Assistant Professor at Universidad Adolfo Ibáñez and Associate Researcher at the Graduate Institute (Geneva. His work has been published in journals such as Journal of Latin American Studies, Revista de Historica Economica - Journal of Iberian and Latin American Economic History, Financial History Review and Investigaciones de Historia Económica - Economic History Research. His first book "Mexican banks and foreign finance: From internationalization to financial crisis, 1973-82" was published in 2019 by Palgrave Macmillan. He has been awarded the Prix de la Relève 2016 by the Swiss Academy of Humanities and Social Sciences and a number of fellowships by the SNSF, the European Commission and the French government. He has been academic visitor at the University of Zurich, Fundação Getulio Vargas in São Paulo and New York University. He holds a Phd. in Economic and Social History from the University of Geneva, a Master in Economics from the University of Paris 1 - Pantheon Sorbonne and a Bachelor in Economics from the National University of Cordoba, Argentina

Marco Molteni is assistant professor at the University of Turin and affiliated with the History Faculty of the University of Oxford. He specialises in both quantitative and qualitative research methods. Marco's main areas of expertise are financial history and Italian economic history. Marco completed his DPhil in September 2021 in Economic and Social History at Pembroke College (Oxford) and wrote his thesis on banking failures and crisis management policies in Fascist Italy (1926-1936), reconstructing the story of what happened using the banking supervision archives at the Bank of Italy, where he spent a semester as visiting guest researcher at the Economic History Division. He then was a Post-Doctoral Researcher - Data Analysis on the ERC funded Global Correspondent Banking 1870-2000 project at the University of Oxford. Previous to this he studied at the University of Milan (BA in History) and at Warwick University (PG Diploma in Economics). His research is published in international journals like Business History, Economic History Review, Cliometrica,European Review of Economic History.