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Published online by Cambridge University Press: 26 October 2009
Over the past twenty years there has been a dramatic increase in the practice of banks located in one country accepting deposits denominated in the currency of another country. Initially, the banks involved were mainly located in western Europe and hence they were often referred to as “eurobanks” and the network which they comprised was called the Eurocurrency System. It is estimated today that the assets available to the System exceed †200 billion. Originally, the U.S. dollar was the main currency involved, but deposits denominated in deutsche Marks and other European currencies are also becoming important. In addition, the prefix “euro” is now somewhat misleading, since many of the banks engaging in this practice are located in the Bahamas, Singapore, Bahrain and other non-European countries. However, the bulk of activity does involve financial institutions in western Europe, so for convenience I shall continue to refer to the system as the Eurocurrency System.
page 26 note 1. An earlier version of this paper was presented to an International Political Economy-Study Group meeting at Chatham House, London. The author would like to thank Susan Strange, Joseph Frankel, Maurice Townsend and Geoffrey Wood for helpful comments.
page 26 note 2. The discussion in this paper will necessarily be of a general nature. However, any reader interested in further details should consult McKenzie, George, The Economics of the Eurocurrency System (London, 1976)CrossRefGoogle Scholar or Little, Jane S., Euro-dollars (New York, 1975)Google Scholar.
page 30 note 1. For a more detailed, pedagogic discussion of these issues, the interested reader should consult McKenzie, G. W., ‘International Monetary Reform and the “Crawling Peg”’, Review of the Federal Reserve Bank of St Louis, (Feb. 1969)Google Scholar, reprinted in Prager, J. (ed.), Monetary Economics (New York, 1971)Google Scholar.
page 33 note 1. Interestingly, some of the earliest depositors in the Eurocurrency System were Eastern European communist nations who desired to maintain their holdings of dollars, but also wanted to avoid the possibility of expropriation which would have been possible if they had held deposits at financial institutions located in the U.S.
page 36 note 1. For a complete official description of Special Drawing Rights (SDR's) the reader is referred to any issue of the IMF's International Financial Statistics.
page 38 note 1. Cooper, Richard N., The Economics of Interdependence: Economic Policy in the Atlantic Community (New York, 1968), p. 5Google Scholar.
