Eurodollars


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Eurodollars

 

temporarily free currency in US dollars deposited by organizations and individuals of capitalist countries in European banks and used by the banks for allocation of credits.

The volume of the Eurodollar market grew from $1 billion at the end of 1959 to $50 billion by the end of 1971 (according to data from the Bank for International Settlements, in Basel). The rapid expansion of the Eurodollar market is explained by the profitability of depositing dollar resources in European banks (in the US, interest rates on bank deposits are restricted), as well as by the desire of capitalist banks and firms and especially of international monopoly associations to be involved in a capital market free from the control of their governments and central banks. The Eurodollar market consists of several hundred intermediary banks, the majority of which are in London. In 1971 more than 200 foreign banks in London were actively participating in the market. In the 1960’s many branches of US banks were opened in Europe for participation in the Eurodollar market. The market deals mainly in short-term credits (from one to six months). From 1965 to 1968 long-term credits (from three to eight years) also began to be allocated.

The resources of the Eurodollar market come from 40 to 50 countries. In 1968, Switzerland accounted for about 17 percent of the total amount of deposits; Italy, 10 percent; Great Britain, 9 percent; France, 7 percent; the remaining European countries, 18 percent; the US, 8 percent; countries of the Near East, 8 percent; Latin America, 6 percent; and other countries, including Canada, 17 percent. In terms of utilization of resources of the Eurodollar market, the US (over 30 percent) was in first place, followed by Great Britain (14 percent).

The Eurodollar market, which is based on mobile bank credit, has become an important part of the international currency system. It is utilized by capitalist states as a source of funds for temporarily covering deficits in payments balances and for replenishing national monetary markets; it is also used for profitable investment of resources by countries with favorable payments balances. At the end of the 1960’s and the beginning of the 1970’s the enormous growth of the Eurodollar market fed the inflation in Europe and was one of the main reasons for the aggravation of the currency crisis and the devaluation of the dollar (December 1971).

E. D. ZOLOTARENKO

References in periodicals archive ?
Despite their prevalence, Eurodollars are some of the least understood financial instruments.
Because Eurodollars represent a market for dollars that is not controlled by the Federal Reserve, it has the potential to affect or even undermine the Federal Reserve's ability to control the supply of U.
Several features make the eurodollar market very appealing as a source of funds:
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The interest costs of managed liabilities, such as large time deposits and foreign deposits (for example, Eurodollar deposits), adjust more quickly to changes in market interest rates than do yields on retail deposits.
The total value of Eurodollars in circulation has grown at a rate of about 25 percent a year since the mid-1970s, compared with a growth of real trade of only 4 percent annually.
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A total of 750 million eurodollars in floating-rate notes are due in February 2004.
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