Eurodollar
US dollar deposits held in foreign banks outside the United States, forming a vast global interbank lending market.
What is Eurodollar?
Eurodollars are US dollar-denominated bank deposits held outside the United States — typically in European banks, but also in offshore financial centers globally. They are not regulated by the Federal Reserve, allowing banks to pay and charge different interest rates than domestic dollar deposits. The eurodollar market developed in the 1950s when Soviet-bloc countries held dollar balances in European banks to avoid potential US asset freezes. It grew into one of the world's largest money markets, forming the basis for LIBOR (London Interbank Offered Rate) and its successor benchmark rates. Eurodollar futures, traded on the CME Group, were historically one of the most liquid interest rate derivative instruments in the world.
Example
The eurodollar futures contract — which tracked 3-month LIBOR rates on offshore dollar deposits — was one of the most actively traded derivatives contracts globally before LIBOR's discontinuation in 2023. Financial institutions used eurodollar futures to hedge short-term dollar interest rate exposure in offshore funding markets worth trillions of dollars.
Source: CME Group — Eurodollar Futures