The Soviet Banker Who Invented the Offshore Dollar

On February 28, 1957, a Moscow trade bank moved $800,000 out of an account in New York and into Moscow Narodny Bank in London. The dollars never physically went anywhere — they sat where they had always sat, in correspondent accounts at American banks. What changed was the name on the deposit. The owner of record was no longer a Soviet entity but a British limited company.

The Soviets had been spooked by the 1956 Hungarian uprising. Western governments had frozen Axis assets a decade earlier and could plausibly do it again to them. Moscow Narodny solved the problem on paper. The bank had been registered in London since 1919, the year after the revolution; its shares were owned by the USSR, but as a matter of English law the dollars belonged to a British company that could not have its US accounts seized over a Soviet political crisis.

A second early node was the Banque Commerciale pour l'Europe du Nord in Paris — also Soviet-controlled, with the telex address EUROBANK. When traders wired dollars to that address, they started calling them eurobank dollars, then eurodollars. The name stuck even after the Soviets stopped being the main customer.

What made the market grow wasn't politics. It was Regulation Q, the US ceiling on bank deposit interest. Dollars held in London faced no such cap, no reserve requirement, no FDIC fee. By the 1970s every major multinational was funding itself through London. The Soviets had stumbled into a regulatory arbitrage that would, fifty years later, finance the world.