Laws, liquidity and Eurobonds: the making of the Vanuata tax haven

Abstract

In the mid-1950s, interest rate differences between US and British banks, regulatory diversity between these two states and Soviet-US Cold War rivalry started to make third-party countries and territories increasingly attractive locations for the depositing and trading of US dollars. As the post-World War II Bretton Woods agreement started to unravel in the 1960s and 1970s, banks, fund managers and wealthy individuals searched for new homes for surplus cash, free from central government regulation. In doing so, a number of small countries and territories began to offer services to attract these funds. The rise of these Eurodollar foreign currency markets was crucial in the transition from fixed to floating exchange rates. This paper situates the emergence of the Vanuatu tax haven within the context of this transition. Drawing from the growing scholarship of 'the offshore' along with primary source records held in the National Archives of Australia and those of Westpac Historical Services, it argues that the formation of the New Hebrides tax haven was the result of the interplay between law (particularly English common law) and increasing liquidity in the world's Eurobond money markets. The British party to the condominium was able to script company and fiduciary law to attract tax free funds managed by trust companies, banks and accountants who established offices in the capital, Port Vila, between 1970 and 1973. The influx of these firms triggered transformations in the use of urban space, generating considerable economic growth in the New Hebrides. In doing so the local and the global became intertwined in the making of the Vanuatu tax haven. This paper maps these articulations between global markets and local places.