The Eurodollar System
How dollars work outside the U.S. — and why the offshore-dollar market is bigger than most investors realize
When investors talk about 'the dollar' they usually mean the U.S. domestic money supply — the M2 measured by the Federal Reserve, the deposits at U.
S. banks, and the currency in circulation tracked in the H.4.
1 release at federalreserve.gov/releases/h41/. M2 in the U.
S. is approximately $21 trillion (recent H.6 release at federalreserve.
gov/releases/h6/). But that is not where most dollars are. The Bank for International Settlements' Locational Banking Statistics (the authoritative reference for cross-border banking, published quarterly at bis.
org/statistics/bankstats.htm) tracks U.S.
-dollar-denominated liabilities held by banks outside the United States — the offshore dollar market. Per BIS's recent quarterly publications, cross-border dollar liabilities of banks reporting to the BIS exceed approximately $13-14 trillion, depending on the specific metric (foreign currency liabilities of all reporting banks, or specifically U.S.
-dollar liabilities of banks outside the U.S.) The eurodollar system is the term for this offshore market.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 6 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Why the eurodollar system exists — historical origins and modern functions
- 2Eurodollar system mechanics in detail
- 3Offshore dollar system indicators and what each signals
- 4March 2020 — when offshore dollar funding stress triggered the largest Fed swap-line activation since 2008
- 5Where to see this on the platform
- 6Summary