International dollar liquidity and the Eurodollar market

Summary Transactions of Eurodollar banks affect international dollar liquidity (and the US payments balance) exactly as would identical transactions of US banks. Eurodollar banks are, however, usually more likely to grant credits to foreigners than US banks, and thus to raise foreign gross (thought not net) dollar liquidity. In times of international dollar glut, an expansion of the Eurodollar market (e.g., through shifts of deposits from US to Eurodollar banks or through US banks repaying Eurodollar borrowings) thus tends to aggravate unwanted dollar flows to foreign central banks and the US reserve transactions (though not the net liquidity) payments deficit.This paper is a by-product of the author's contribution to the study Foreign Dollar Balances and the International Role of the Dollar, conducted jointly with Professor Raymond F. Mikesell and sponsored by the National Bureau of Economic Research. Neither Professor Mikesell nor the National Bureau (nor the Foreign Service Institute) bears, however, any responsibility for the views expressed in this paper.