TIL a precise definition of eurodollars
In this episode of "Today I Learned" I learned the real meaning of the term "eurodollar".
I was falsely under the impression that the term eurodollar referred to just the offshore dollars that were being held in the Euro zone. The "euro" in eurodollar refers to all dollars that are held outside the geographical area in which the dollar is the local currency. In a similar way people referred yen that existed and circulated outside Japan as euroyen although this term is heard a little less frequently these days.
The currency called the Euro is a reference to the euro concept. Unfortunately it added to my confusion about the meaning of the eurodollar.
As the events of 2020 show it's important to understand the impact of offshore currency flows. This explains some events that otherwise might not make that much sense, like why in March 2020 when US equities took a plunge why the USD strengthened at this time.
A number of interesting implications come up when you consider offshore dollars.
Specifically many of the inflationary concerns that people have about the US dollar come from at things like the huge increase in M1 and M2 as per the data from the Fed. There's definitely an increase on the broad monetary supply side onshore, that's not in question, but what about the supply side offshore? What about the demand side? Here's a good article that talks about the demand side, due to the US Dollar enjoying the status of the world reserve currency the situation is a lot more complex than the popular narratives make it seem. If there is a higher demand for dollars worldwide than there is available supply this will have some deflationary effects while the imbalance continues.
Jeff Snyder has a variety of interesting videos about the eurodollar system that are worth having a look at if you want to dive into this more deeply.