Eurodollars
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Eurodollars are deposits denominated in United States dollar at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Subsequently, such deposits are regulated much less than similar deposits within the United States, allowing for higher margins.
Historically, such deposits were held mostly by European banks and financial institutions, and thus became known as eurodollars. Such deposits are now available in many countries worldwide, but they continue to be referred to as eurodollars regardless of the location.
History
Gradually, after the Second World War, the amount of US Dollars outside the United States increased enormously, both as a result of the Marshall Plan and as a result of the U.S. imports, which had become the main consuming market of the World after peace was reestablished in Europe.
As a result, enormous sums of US Dollars were in custody of foreign banks outside the United States. Some foreign countries, including the Soviet Union also had deposits in U.S. dollars in American banks, granted by certificates.
During the Cold War period, especially after the invasion of Hungary in 1956, the Soviet Union feared that its deposits in North American banks would be frozen as a retaliation. A British bank offered the Soviets the possibility of receiving its US Dollars reserves as deposits, outside the USA. The British bank would then deposit that money in the US banks. So, there would be no chance of confiscating that money, because it belonged to the British bank, and not to the Soviets. This operation was considered the first to create the so-called Eurodollars.
Gradually, as a result of the successive commercial deficits of the United States, the Eurodollar market expanded worldwide.
Bibliography
- RATTI, B. Comércio Internacional e Câmbio. 9ª Edição. São Paulo, Brazil, Edições Aduaneiras, 1997
- SANDRONI, P. Novíssimo Dicionário de Economia. 5ª Edição. São Paulo, Brazil, Editora Best Seller, 2000.
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