ABSTRACT
Libor and Euribor are the reference interest rates that set the average cost of loans among a restricted group of banks. The major relevance of Libor and Euribor relies, however, on their being metonymically associated to international interbank money markets in which banks engage in a series of mutual over-the-counter lending operations. These markets are only half a century old. They started to develop in Europe in the late 1950s and throughout the 1960s, giving rise to a London-based transactional structure known as the Eurodollar market, whose activities went uncontrolled by either national central banks or the Bretton Woods fixed exchange rate system institutions (Arrighi, [1994] 2010, p. 310). The quick expansion of such an informal market – which soon became a fundamental source of funding for large banks and multinational corporations (BIS, 1983, pp. 11-12) – sometimes gets interpreted as a reopening of the international financial circuits that had otherwise stayed shut since 1929 (see Ridley and Jones, 2012; Engelen et al. , 2010, p. 47). The breakdown of the Bretton Woods Accord in 1971 symbolized a new era of fluctuating rates, with banks and corporations increasingly recurring to financial derivatives so as to actively manage risk: interest rate swaps, forward rate agreements as well as currency options and swaps became associated with Eurodollar lending operations as from the late 1970s onwards (Kirti, 2014). In 1981, the calculation of the Libor rate was for the first time based on a daily poll arranged by the Chicago Mercantile Exchange, officially launched as an index of the same Eurodollar market in 1985 under the supervision of the British Bankers Association. At the same time, similar rates appeared in Europe, such as Pibor, Fibor or Aibor, which would later merge into Euribor. This later rate was introduced in 1999 under the administration of the European Banking Federation and soon became the leading benchmark for interbank lending operations within the Eurozone.
