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 The
explosion of the Euro marketThe
rapid development of the Eurodollar market,
where US dollars are deposited in banks
outside the US, was a major mechanism for
speeding up Forex trading. Likewise, Euro
markets are those where assets are deposited
outside the currency of origin. |
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The Eurodollar
market first came
into being in the
1950s when the
Soviet Union's oil
revenue -- all in US
dollars -- was being
deposited outside
the US in fear of
being frozen by US
regulators. This
resulted in a vast
offshore pool of
dollars outside the
control of US
authorities. The US
government therefore
imposed laws to
restrict dollar
lending to
foreigners. Euro
markets then became
particularly
attractive because
they had fewer
regulations and
offered higher
yields. From the
late 1980s onwards,
US companies began
to borrow offshore,
finding Euro markets
an advantageous
place for holding
excess liquidity,
providing short-term
loans and financing
imports and exports.
London was and
remains the
principal offshore
market. In the
1980s, it became the
key center in the
Eurodollar market
when British banks
began lending
dollars as an
alternative to
pounds in order to
maintain their
leading position in
global finance.
London's convenient
geographical
location (operating
during Asian and
American markets) is
also instrumental in
preserving its
dominance in the
Euro market. |
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