Eurocurrency is the term used to describe deposits residing in banks that are located outside the borders of the country that issues the currency the deposit is denominated in. For example a deposit denominated in US dollars residing in a Japanese bank is a Eurocurrency deposit, or more specifically a Eurodollar deposit.

As the example identifies, it is important to note that despite its name Eurocurrencies are not limited to Europe and as such it must not be confused with the Euro. The use of this idiosyncratic term arose from the fact that Eurocurrency markets first developed in Europe during the 1950s when the Soviet Union asked London banks to hold US dollar denominated deposits in the fear that deposits in US banks run the risk of being frozen or seized for political reasons.

Today the Eurocurrency markets are active for the reason that they avoid domestic interest rate regulations, reserve requirements and other barriers to the free flow of capital (Butler, 2004, pp. 62-63).

References

• Butler, Kirt (2004) Multinational Finance (3rd ed). South Western, Tompson.