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 ?
See MELNIK & PLAUT, supra note 12, at 3; Scanlon, supra note 15, at 22 ("Since the beginning, London has been the major center for trading in Eurodollars.").
(26) See STIGUM, MONEY MARKET, supra note 9, at 142 (tabulating the growth in the gross size of the Eurocurrency market from $315 billion in 1973 to $1.86 trillion in 1981, with Eurodollars constituting 74% and 78%, respectively, of all Eurocurrency liabilities).
The growth of Eurocurrency deposits has facilitated Eurodollar loans.
Historically, for example, highest-quality Eurodollar bonds could be issued at a lower rate than the market yield on similar maturity U.S.
Fixated on achieving short-term financial returns, currency traders in the money center banks, armed with footloose Eurodollars, engage in destabilizing foreign exchange speculation by attacking the weak currencies and supporting the strong ones.
Eurodollar accounts, however, are not subject to such reserve set-asides.
At the most basic level, Eurodollars are "deposit liabilities, denominated in dollars, of banks outside the United States." (22) In other words, they are short term IOUs for dollars that are issued by banks outside the United States.
One such instrument is the Chicago Mercantile Exchange futures contract for a three-month eurodollar time deposit with a principal amount of $1,000,000.
Based on the demand for alternative pricing structures, many corporate borrowers now have the option of tying their loan rates to the eurodollar market.
Herring on certain arcane aspects of Eurodollar operations; its relevance is, however, uncertain.
The chart at left shows the interest rates associated with 90-day Eurodollar futures to be delivered between June 2010 and December 2012.
Cosimano and McDonald also consider the 1990 reduction of reserve requirements on eurodollar liabilities and nonpersonal time deposits.