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The Euro Dollar Market and Financial Crises

Interest-Rates / US Bonds Feb 10, 2011 - 10:17 AM GMT

By: Christopher_Quigley


Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S., allowing for higher margins. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition: a U.S. dollar-denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit. There is no connection with the euro currency or the euro zone. The first Eurodollars were created by deposits made by the Moscow Narodny bank in 1957 to its branch in London to protect Russian State foreign reserves during the cold war.

Eurodollar deposits are a cheaper source of funds because they are free of reserve requirements and deposit insurance assessments.
Due to the secrecy and light regulation surrounding the Eurodollar market, based in London, an extraordinary situation has unfolded where the Euromarket which has no physical embodiment in an exchange is now the largest source of capital in the world. This state of affairs has developed because dollars held in “banks” overseas (i.e. Eurodollars) form the basis of new bank credit. This credit is issued with untold leverage due to no formal reserve requirement and little or no regulation. The fact that this “market” is based at the Corporation of London (otherwise known as “The City”) is one reason why this financial powerhouse is beginning to eclipse New York as the financial center for the 21st. century.

The growth of the Eurodollar market has been further supported by the birth of Eurobonds. These instruments are in the main unregulated offshore bearer bonds. No record is kept of who owns them so they are perfect for tax evasion. Thus it is no shock to discover a great source of funds to the Eurobond market comes from The Isle of Man, Jersey, Guernsey, Malta, Cyprus, The Cayman Islands, Barbados, Bermuda, The Virgin Islands, Gibraltar, Monte Carlo, Lichtenstein, Luxembourg,  the IFSC Dublin, Hong Kong, Panama and of course, the daddy of them all, Switzerland. These tax havens are all linked to “The City” by a myriad of interconnected accountants, lawyers, financial advisors, consultants and “boutique” banks where secrecy is paramount. It is estimated that wealthy individuals and multinational corporations hold more than 18 trillion dollars (that’s trillion with a capital “T”) “offshore” in these “tax havens”.

As a result the Eurodollar has become a new form of money (if by money one means unregulated credit) and had exploded in size. By 1997 nearly 90% of all international loans were in this market. Today it has grown so large that the Bank of International Settlements has ceased to measure it independently.

The part the Eurodollar market has played in the Global financial collapse has not been fully analyzed or documented to date. I think such an analysis is long overdue. Our monetary system needs to be brought back to a solid steady state where economic value means solid capital investment which creates real added value, real employment and real benefits for ordinary citizens and society  not smoke and mirror transfer profits for a gilded elite.

Reference:        “Treasure Islands”
                            Nicholas Shaxson

                            Wikipedia Online Encyclopedia

By Christopher M. Quigley
B.Sc., M.M.I.I. Grad., M.A.

Mr. Quigley was born in 1958 in Dublin and holds a Batchelor Degree in Accounting and Management from Trinity College/College of Commerce, Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the Stock Market in 1989. in Belmont, California where he lived for 6 years. He developed the Wealthbuilder investment and trading course over the last decade as a result of research, study, experience and successful application. This course marries Fundamental Analysis with Technical Analysis and focuses on 3 specific approaches. Namely: Momentum, Value and Pension Strategies.

Mr. Quigley is now based in Dublin, Ireland and Tampa Bay, Florida.

© 2011 Copyright Christopher M. Quigley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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