Libor 1986–2021: the making and unmaking of ‘the world's most important price’

Alexis Stenfors, Duncan Lindo

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Abstract

Up until around 2008 and the subsequent revelation of systematic manipulation, the integrity and ‘facticity’ of the London Interbank Offered Rate (LIBOR) were rarely questioned. Academics treated LIBOR and the Eurodollar market as if they were synonyms. Central bankers conducted monetary policy as if the LIBOR was an objective reflection of the money market rate. Corporates and households entered into LIBOR-indexed financial contacts as if a money market was the underlying benchmark. This paper investigates how and why LIBOR managed to maintain its status as a term for the competitive money market colloquially, professionally and in the economic literature for so long. By adopting a theoretical framework drawing insights from both political economy and sociology, and applying it to the LIBOR-indexed derivatives market, it is shown how the benchmark's appearance betrays its fundamental nature. This process benefits certain actors within the market: the banks. Importantly, however, it also reveals how LIBOR became, and remained, such an important benchmark, how it came to be perceived as an ‘objective fact’, and why the regulation that came into place was insufficient to sustain its future use.
Original languageEnglish
Pages (from-to)170-192
Number of pages23
JournalDistinktion: Journal of Social Theory
Volume19
Issue number2
Early online date11 Feb 2018
DOIs
Publication statusPublished - 1 May 2018

Keywords

  • LIBOR
  • benchmark
  • price
  • derivatives
  • Eurodollar market
  • banks
  • financial regulation

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