A:

Eurodollars have little to do with the official currency of the European Union, the euro (EUR). In 1999, the euro was implemented as the official currency of the European Union as a means to further integrate the economies of that region. Most of the member states of the European Union have dropped their former domestic currencies completely, and all the major banking institutions in Europe now deal with euros in their transactions and operations.

Eurodollars, though, are not found only in Europe. Eurodollars refer to American dollar-denominated money market deposits found in any bank not located in the U.S.;Eurocurrency is any currency deposited in a bank that is not located in the home country where the currency was issued.

The origins of the name "eurocurrency" stem from 1950s. The Soviet Union's currency, the ruble, was considered to be a soft currency. Furthermore, it was extremely difficult, and perhaps even impossible, to exchange rubles for hard currency because the Cold War had caused many countries to avoid the Soviet Union. As a result, the Soviet Union sold commodities in order to receive U.S. dollars. Those dollars could not be deposited into conventional American banks, because it was likely that the U.S. government would freeze those accounts in the event of a confrontation between the two superpowers. In the end, the dollars were deposited in a European bank that had a telex address code called "euro-bank". These deposits would be the start of the eurocurrency market.

To learn more about the money market, see Getting To Know The Money Market and The Money Market: A Look Back.

RELATED FAQS
  1. When and why did the euro make its debut as a currency?

    On January 1, 1999, the European Union introduced its new currency, the euro. Originally, the euro was an overarching currency ... Read Answer >>
  2. How did the Soviet economic system affect consumer goods?

    Discover how the now-defunct Soviet economic system affected domestic consumer goods markets. Communist ideology dictated ... Read Answer >>
  3. Does the FDIC cover credit unions?

    Learn whether or not the FDIC insures your funds at a credit union, and what types of insurance are available at the different ... Read Answer >>
  4. What is the difference between a demand deposit and a term deposit?

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between these two types ... Read Answer >>
  5. What are the Federal Reserve's guidelines on demand deposit accounts?

    Read about some of the Federal Reserve's requirements and guidelines regarding the treatment, safeguarding and processing ... Read Answer >>
  6. How can I trade in cross currency pairs if my forex account is denominated in U.S. ...

    The forex market allows individuals to trade on nearly all of the currencies in the world. However, most of the trading is ... Read Answer >>
Related Articles
  1. Personal Finance

    Tired Of Banks? Try A Credit Union

    These nonprofit organizations can provide a range of services for lower fees.
  2. Insights

    Why the USSR Collapsed Economically

    While initially experiencing rapid economic growth, the Soviet command economy collapsed after it grew more complex.
  3. Investing

    Will China Suffer a Fate Similar to That of the Soviet Union?

    Many parallels could be drawn between the former USSR and today's China, but the one similarity the CCP wants to avoid is the Soviet Union's collapse.
  4. Trading

    Why the Euro Failed to Become the World's Reserve Currency

    Examine the current state of the U.S. dollar as the world's reserve currency; learn the major reasons why the euro has failed to replace it in that capacity.
  5. Investing

    Buying Euros as a Long-Term Investment: Risks and Rewards

    Learn about the potential risks and rewards of long term investing in the euro and the current status of the European Union's financial markets.
  6. Trading

    Behind The Euro: History And Future

    The euro was designed to create economic parity among eurozone nations. Discover where it's going and where it's been.
  7. Personal Finance

    Credit Unions vs. Banks: Which Is Better?

    Credit unions vs. banks: Even though most Americans have accounts with a traditional big bank, many Americans are opting to join a credit union instead.
RELATED TERMS
  1. Eurocurrency Market

    The money market in which Eurocurrency, currency held in banks ...
  2. Currency Union

    When two or more groups (usually countries) share a common currency ...
  3. Euro Deposit

    The equivalent of a money market rate on cash deposits made in ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European ...
  5. Credit Union

    Member-owned financial co-operative. These institutions are created ...
  6. Dual Currency Deposit

    A fixed deposit with variable terms for the currency of payment. ...
Hot Definitions
  1. Restricted Stock Unit

    Compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock ...
  2. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  5. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center