Eurocurrency History & Growth

After the 2nd World War, the amount of US Dollars outside the United States increased enormously, both as a result of the Marshall Plan and as a result of imports into the USA. As a result, large sums of US Dollars were in custody of foreign banks outside the United States. Many foreign countries, including the Soviet Union, had deposits in US dollars in USA banks. After the invasion of Hungary in 1956, the Soviet Union feared that its deposits in American banks could be frozen as retaliation. A British bank offered the Soviets the possibility of receiving its US Dollar reserves as deposits, outside the USA. This operation was considered the first to create so-called Eurodollars.

Gradually, as a result of the successive commercial deficits of the United States, the Eurodollar market expanded until today where it is available in virtually every country. Today, Eurocurrency refers to deposits in any currency residing in banks that are located outside the borders of the currency’s country. For example a deposit denominated in Yen residing in an Australian bank is a Eurocurrency deposit, or more specifically a EuroYen deposit. Similar external deposits apply to EuroSterling, EuroEuro, EuroSwissFranc, etc.