Eurocurrency
Candlefocus EditorOriginating in the 1950s, eurocurrency is the result of a number of different economic and political factors having an effect on financial markets. During the 1950s, foreign banks began offering customers deposits denominated in US dollars, around the same time as dollar-denominated trade was increasing as a result of the US becoming more powerful globally. This created an influx of deposits of US dollars in overseas banks, giving rise to the concept of eurocurrency.
Eurocurrency has grown substantially in size and scope over the past few decades and is now responsible for a significant portion of global financial activity. Eurocurrency represents a large pool of global liquidity, making it an important component of the international financial system. It is estimated that eurocurrency represents about 70 percent of all foreign exchange deals, including those taking place in both developed and emerging markets.
The use of eurocurrency has allowed multinational companies to access finance from different parts of the world and to benefit from lower transaction costs. With these advantages come risks though, as the lack of oversight over eurocurrency transactions can make them vulnerable to organized crime and money laundering.
Another issue that eurocurrency raises is the potential for currency manipulation on the part of governments. For example, some countries have been accused of intentionally understating their official currency reserves while overstating their eurocurrency holdings in order to drive up the value of their currency.
The global financial system is highly reliant on eurocurrency and its use is likely to continue to increase. Despite the risks inherent in its use, eurocurrency remains an integral part of the global economy. In particular, its role in international finance and trade is likely to remain strong in the years to come.