The eurodollar market — what offshore-USD funding actually is
Stefan Avdjiev and Patrick McGuire at the Bank for International Settlements have spent two decades mapping the offshore dollar system — bank balance sheets denominated in US dollars but booked outside US borders. The headline finding is that this system dwarfs the Federal Reserve's own balance sheet.
Key fact
Non-US banks' US-dollar liabilities: about $13 trillion in 2024 (BIS Quarterly Review, Avdjiev and McGuire tracking).
Stefan Avdjiev and Patrick McGuire, both senior economists at the Bank for International Settlements in Basel, have been the most consistent academic and policy chroniclers of the eurodollar system since the early 2010s. Their tracking work — published in BIS Quarterly Reviews and working papers — is the empirical spine of how modern central bankers understand offshore dollar funding.
The eurodollar market is older than the post-1971 floating-rate regime. It began in the late 1950s when Soviet and Eastern European banks held US dollar deposits in London to avoid US asset-freeze risk. By the 1970s, oil price shocks and recycled petrodollars deepened the pool. By the 2000s, the system had become the primary funding venue for global trade and corporate borrowing outside the United States.
Avdjiev and McGuire's core analytical move was to read bank balance sheets across borders. A French bank lending US dollars to a Brazilian exporter shows up as a dollar asset in Paris and a dollar liability somewhere else — often a US money-market fund or a Japanese insurer. Stitching these flows together, the BIS team estimated non-US banks held roughly $13 trillion in US-dollar liabilities by 2024, with the gross cross-border position well above that.
The Federal Reserve's own balance sheet, by comparison, peaked near $9 trillion in 2022 and has been shrinking. The offshore system is larger, less regulated, and structurally dependent on Fed liquidity in crisis. The 2008 freeze, the March 2020 dash for cash, and the September 2019 repo episode all turned on the Fed providing dollars to banks it does not supervise.
The policy implication that Avdjiev and McGuire draw is that the Fed has become the world's lender of last resort for dollar funding whether the Federal Open Market Committee wants the role or not. The swap-line architecture, expanded in 2008 and again in 2020, is the formal expression of that role. The eurodollar data is what makes the architecture make sense.
The eurodollar market emerged in the 1950s and 1960s as a set of US-dollar-denominated deposits held in banks outside the United States, initially concentrated in London and subsequently spread across major financial centres. The market's growth was driven by Soviet-bloc desire to hold dollar balances outside the reach of US regulatory jurisdiction during the Cold War, by US capital-control regimes in the 1960s that pushed dollar lending offshore, and by London's regulatory permissiveness for non-sterling banking activity. What began as a workaround for specific regulatory frictions has become the largest pool of dollar liquidity in the global financial system, with the Bank for International Settlements estimating offshore-USD claims at roughly $13 trillion as of the most recent data.
The operational distinction that defines a eurodollar deposit is jurisdiction, not currency. A US-dollar deposit at HSBC London or Mizuho Tokyo is a eurodollar; a US-dollar deposit at Citibank New York is not. The eurodollar deposit is outside US bank regulation in most senses — reserve requirements, deposit insurance, certain capital rules — but is denominated in US dollars and ultimately settles through the US payments system. The market's existence creates the phenomenon of dollar liquidity in jurisdictions where the domestic central bank does not control the currency, which is both an enormous convenience for global commerce and a structural vulnerability for the international financial system.
The 2007-2009 global financial crisis exposed the vulnerability. Foreign banks operating in dollar markets had accumulated dollar liabilities (eurodollar deposits) backed by dollar assets (US-mortgage-related securities and other dollar instruments) whose values collapsed during the crisis. The maturity mismatch and the loss of confidence in the asset side produced a global dollar funding squeeze that no non-US central bank could resolve on its own, because no non-US central bank can print dollars. The Federal Reserve's response — emergency US-dollar swap lines with major peer central banks, eventually formalised into a standing facility with the European Central Bank, Bank of England, Bank of Japan, Swiss National Bank, and Bank of Canada — recognised the systemic importance of offshore-USD funding and established the architecture for managing future squeezes.
Adam Tooze at Columbia, in *Crashed: How a Decade of Financial Crises Changed the World* (Viking, 2018), provided the canonical account of how the 2008 crisis revealed the eurodollar market's centrality to the global financial system. The book's analytical move is to show that the United States' role as global lender of last resort, exercised through the swap-line architecture, was the decisive intervention that stabilised the international financial system in 2008-2009 — even as the political discourse around the crisis focused almost entirely on domestic mortgage policy and bailouts of named US institutions.
The post-2008 evolution of the eurodollar market has been shaped by Basel III bank-capital and liquidity reforms, by the regulatory unwinding of certain offshore-funding structures (the Money Market Reform of 2014, the LIBOR-to-SOFR transition completed in 2023), and by the structural growth of non-bank financial intermediaries that hold dollar assets and dollar liabilities outside the traditional regulated banking perimeter. The CIP-deviations literature — covered interest parity deviations that measure the implicit cost of accessing offshore-USD funding — has tracked persistent deviations from the no-arbitrage benchmark, indicating that the market is operating but under stress conditions that were absent in the pre-2008 decade.
The strategic implication for non-US borrowers and lenders is that access to dollar funding remains structurally asymmetric. The Fed's swap-line architecture covers the major peer central banks but does not cover most emerging-market central banks, which must build dollar reserves directly through current-account surpluses or capital inflows. Emerging-market borrowers with dollar liabilities remain exposed to the Fed's monetary policy decisions in ways that domestic-currency borrowers are not. The eurodollar market's depth is a public good produced by the United States almost incidentally, and the cost of accessing it is paid by every non-US borrower whose business model requires offshore-USD funding.
The forward-looking implication of this analysis is that the structural drivers identified above will continue to shape policy trajectories across the second half of the 2020s. The doctrinal frameworks, institutional arrangements, and bilateral relationships described in the preceding sections are durable across multiple electoral cycles in the participating capitals, and any disruption of them would require shifts in underlying interests rather than rhetorical adjustment. The analytical reading developed here is not a prediction of a specific outcome at a specific date. It is a framework for reading the next round of developments — the summits, the policy announcements, the data releases, the bilateral and multilateral diplomatic moves — against the structural constraints the framework identifies. Each subsequent development can be read as confirming or refining the framework's predictions, and the cumulative pattern across multiple developments is what produces the analytical clarity that policy work most often needs. The headline-driven coverage of any specific event will continue to misread the broader trajectory; the data-driven, frame-anchored reading developed here is the antidote to that misreading and is the analytical discipline the policy community most needs across the remainder of the decade. The arithmetic of the underlying interests does not change quickly. The political and rhetorical surface above the arithmetic does change, sometimes quickly, and reading the two together is what produces analytical durability and policy-relevant insight that survives the news cycle.
The institutional research that underwrites this reading — the policy papers, the journal articles, the open-source datasets, and the running track records of the named scholars — represents a body of work substantially larger than any single explainer can summarise. Readers seeking deeper engagement should consult the primary sources cited in the preceding sections directly. The reading developed here aims to be a useful entry point rather than a substitute for that primary literature, and the framing has been chosen to surface the analytical moves that carry the most explanatory weight across the largest set of subsequent developments. A reader returning to this material in a year, in three years, or in five years should still find the framework usable, because the structural relationships it describes change more slowly than the headline developments they organise. The decade ahead will produce many specific events that this analysis cannot anticipate. The framework, if it is the right one, will help organise those events as they arrive.