Eurodollars: an Economic Analysis

Abstract

The rapid growth of the Eurodollar market in the last several decades has raised intriguing questions about the impacts on exchange rates, monetary control, and the world price level. The articles and books written on the growth of the offshore market in deposits and other financial instruments denominated in the US dollar, the German mark, and other currencies reflect a process of discovery, much like the reports from the explorers of the New World in the fifteenth and sixteenth centuries to their sponsors on the manners and morals of the Indian tribes, the flowers and the fauna, and the geological features. Early maps suggest the difficulties inherent in extrapolating the configuration of the coastline of the Americas from a cursory sample. Similarly the early explanations and analysis of the Eurodollar market bear only a vague relationship to the current understanding of why this market developed, and some of its implications, especially for the traditional issues of monetary control and regulation.