Euro-dollar creation: a mystery story

The article looks at the disparity of views among experts regarding the growth of the “Euro-dollar market”. Contradictory explanations have been offered by various authors on the sources and uses of these funds. On one side of the spectrum is the idea that Euro-dollar deposits are the result of multiple creation of credit by banks in a system of only fractional reserves. On the other side is the idea that these deposits owe their existence to owners’ decisions to deposit them with banks in Europe. Some see the source of Euro-dollars in the deficit of the balance of payments of the United States, while others disagree. Finally, most have judged the development of this market to be healthy and beneficial, yet a few have warned of potential catastrophe. The author engages on an extensive conceptual, theoretical and empirical analysis in an attempt to show why some of the current positions held cannot be substantiated by the evid ence available at present.