Private Short-Term Capital Flows and the Eurodollar Market

Abstract

The operations of the Eurodollar market have had a substantial influence on both the volume and the nature of private short-term capital flows in the U.S. international accounts on the one hand, and on the character of international dollar liquidity held by foreigners on the other. Most of the liquid dollar assets held by foreign commercial banks (excluding foreign branches of U S banks) and by foreign individuals and non-bank concerns is in the form of dollar deposits in commercial banks outside the U.S.¹ One consequence of the Eurodollar market has been the growth of the multinational banking structure. Of the $21 billion in U.S. short-term dollar liabilities to foreign commercial banks and other non-official entities as of the end of 1970, about $14 billion represented intra-bank accounting entries, i.e. liabilities of U.S. commercial banks to their foreign branches ($7.7 billion) plus liabilities of agencies and branches of foreign banking corporations in the U.S. to their head offices and branches abroad ($6.5 billion est.).² Intra-bank transactions have tended to dominate U.S. short-term capital movements arising from changes in foreign short-term assets held in the U.S.

The author is W. E. Miner, Professor of Economics, University of Oregon. This article was written in early 1971. For an analysis of subsequent developments in the Eurodollar market and the U.S. balance of payments, see Raymond F. Mikesell and J. Herbert Furth, Foreign Dollar Balances and the International Role of the Dollar, National Bureau of Economic Research, New York, 1973 (forthcoming).