Eurodollar

Eurodollar refers to U.S. dollar-denominated deposits and loans that are held or traded outside the United States, typically in banks located in Europe, Asia, or other offshore financial centers. The term does not indicate a separate currency; rather, it refers to the currency of denomination and the jurisdiction in which the banking activity occurs. The eurodollar market emerged in the 1950s and 1960s as a way for international banks and corporations to conduct dollar transactions outside U.S. regulatory reach, with London playing a central role.

In practice, eurodollar instruments include offshore time deposits, certificates of deposit, interbank loans, and lines of credit denominated in dollars. Because they are outside the United States, eurodollar deposits are generally not insured by U.S. deposit insurance and are subject to the laws of the host country and the operations of the host banks. The Federal Reserve does not directly regulate eurodollar deposits, though it monitors systemic risk and dollar liquidity; central banks and national regulators oversee the host institutions.

Interest rates on eurodollar instruments are determined by market supply and demand and have historically been linked to the rates of U.S. dollar interbank lending. For many years, the London Interbank Offered Rate (LIBOR) served as a benchmark; in recent years, the market has transitioned toward alternative reference rates such as the Secured Overnight Financing Rate (SOFR) and other benchmarks.

The eurodollar market has at times encompassed trillions of dollars in deposits and credit outstanding, making it a key source of offshore dollar liquidity for banks, corporations, and financial institutions.