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The explosion of the Euro market
The rapid development of the Eurodollar market, where US dollars
are deposited in banks outside the US, was a major mechanism
for speeding up Forex trading. Likewise, Euro markets are those
where assets are deposited outside the currency of origin. |
The Eurodollar market first came into being in the 1950s when the
Soviet Union's oil revenue -- all in US dollars -- was being deposited
outside the US in fear of being frozen by US regulators. This resulted
in a vast offshore pool of dollars outside the control of US authorities.
The US government therefore imposed laws to restrict dollar lending
to foreigners. Euro markets then became particularly attractive because
they had fewer regulations and offered higher yields. From the late
1980s onwards, US companies began to borrow offshore, finding Euro
markets an advantageous place for holding excess liquidity, providing
short-term loans and financing imports and exports.
London was and remains the principal offshore market. In the 1980s,
it became the key center in the Eurodollar market when British banks
began lending dollars as an alternative to pounds in order to maintain
their leading position in global finance. London's convenient geographical
location (operating during Asian and American markets) is also instrumental
in preserving its dominance in the Euro market.
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