eurodollar
Eurodollar means a United States dollar sitting in a bank account outside the United States, doing dollar things without ever touching American soil.
In plain English
Almost everyone who has sent money abroad has noticed something strange, that dollars seem to live everywhere except where they were printed. A Nigerian company in Lagos can hold a dollar account in a London bank, borrow dollars from a Dubai lender, and pay a supplier in China, and at no point does any of that money pass through New York.
That is the whole idea of a Eurodollar. It is simply a United States dollar deposited in a bank outside the United States, whether that bank sits in London, Lagos, Geneva or Singapore. The name is a bit misleading, because it has nothing to do with the euro currency and nothing to do with Europe specifically anymore. It started in Europe in the 1950s, when Soviet linked banks preferred to keep their dollar earnings out of American hands during the Cold War, and the name simply stuck even after the market spread worldwide.
Once dollars sit outside America, they escape a lot of United States banking rules and reserve requirements, which makes them cheaper and faster to lend and borrow. This is why big Nigerian banks and corporates that want dollar loans often deal with the Eurodollar market through banks in London rather than going straight to an American bank.
A Nigerian in the diaspora working in London and holding a dollar denominated savings account with an international bank there is, technically, holding Eurodollars, even though nobody at the counter will ever use that word. The dollars never left the international banking system to touch home soil, yet they are as real and spendable as any dollar in a Chicago wallet.
A Lagos oil trading firm needs a ₦4,000,000 equivalent dollar loan for a shipment. Instead of borrowing from a bank in New York, it borrows from a London bank holding Eurodollar deposits, gets faster approval and slightly better rates, and repays in dollars, all without the money ever routing through the United States.
Questions people ask
Is a Eurodollar a different currency from the normal United States dollar?
No, it is the exact same dollar. The only difference is where it is deposited. A Eurodollar sits in a bank outside the United States, but it spends and counts exactly like any other dollar.
Why would a Nigerian bank prefer Eurodollars to borrowing directly from the United States?
Eurodollar deposits sit outside strict American reserve rules, so lending and borrowing them is often quicker and cheaper. Nigerian banks and companies frequently tap this market through banks in London or other financial centres.
Does the Eurodollar market have anything to do with the euro currency?
Nothing at all. The name is a historical leftover from when the market began in Europe in the 1950s. Today Eurodollars exist in Asia, the Middle East and Africa too, more than Europe.
Last reviewed