Eurodollar Versus “The Euro” Currency
Eurodollars exist in foreign banks or international branches of American financial institutions. The Federal Reserve Board does not closely regulate these deposits. You might have noticed this with popular payment transaction systems, such as PayPal. Currency conversion is not always needed if vendors operate in the same currency you use.
Eurodollar Countries Outside of Europe
Europe used to hold most of the U.S. money not stored within its own country’s borders. That’s why these international USD deposits have inherited the name “Eurodollar.” Now, locations such as the Bahamas and the Cayman Islands hold Eurodollars in their banks.
Not Always The USD
More confusion surrounds the Eurodollar term often mistaken for the euro. Sometimes, you might hear the word “eurocurrency.”
The phrase "eurocurrency" refers to currency someone deposited in a bank outside the nation that issued it. It’s not specific to any one country, and it does not always involve the United States Dollar. For instance, the phrase “eurocurrency transaction” could describe a Japanese yen deposited in a Brazilian bank.
Eurodollar Futures Trading
The surge in popularity of Eurodollar futures correlates to the Eurodollar market that has grown within the past 40 years. After all, the USD has become one of the world's most dominating global commerce and finance currencies.
Some international investors prefer Eurodollar deposits despite the low interest earned. That’s because the risk of running into trouble with the Federal Reserve also remains low. On the other hand, funds outside the U.S. may not have the same insurance and protection as funds within the U.S.
Historical Trading Data
Eurodollar trading prices fluctuated from a little less than below 1% of a value decline from 1983 to 2022. This period also experienced price increases ranging from 1%-4.16%, the highest being in 2001. 2019-2020 saw a 1%-1.9% Eurodollar increase in trading value.
By March 14, 2022, the Eurodollar did decline by 1.4% from the previous year, and in 2021, a decline of .18% did occur. However, trends for this financial product seem to repeat with a few years in a row increasing and then decreasing, so it may increase again by 2025.
Other issues, such as the United States' Federal Government’s decision to raise interest rates, could affect Eurodollar trading. If the government also finds a way to tighten offshore USD regulations, that also could affect the price of this trading product.