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> Because every single transaction in USD must result in a credit and debit to an account at the US Federal Reserve Are you sure about that? How about USD acco

> Because every single transaction in USD must result in a credit and debit to an account at the US Federal Reserve Are you sure about that? How about USD accounts outside America, commonly known as Eurodollars? Ultimately those dollars originally came from the Fed but they are effectively outside their control.

sumanthvepa 5y ago
Eurodollar accounts are essentially deposit accounts at a non-US bank denominated in USD. They are, as are all deposit accounts, debt instruments issued by that bank. These accounts, as you point out, are not subject to US regulations in the sense that US laws regarding bank deposits need not be complied with. A domestic USD checking account at Bank of America is regulated by the FDIC with insurance against fraud etc. For Eurodollar accounts these protections don't apply. (Other protections provided by their home-country laws might apply though.) However, if you were to actually try to transact in USD with that account, the transaction path would still touch an institution that has an account with the Fed. And hence be controllable by the US government. For example if you were to withdraw $50 in cash from your eurodollar account, the bank would still have to purchase the dollars (or more generally acquire them in some way) to give them to you. They cannot print the dollars themselves. The same thing applies to electronic transactions, except that now, there will be a corresponding set entires in the electronic ledgers of some US bank that has an account with the Fed. So for the purposes of sanctions-busting, Eurodollar accounts are no good. Eurodollar accounts are, of course, extremely useful for international trade. Most exporters will need a Eurodollar account to keep transaction costs low. Expats often hold a Eurodollar account with banks in their home countries to insulate them from exchange rate risk. There are a myriad other uses. But evading sanctions is not one of them.

sumanthvepa 5y ago

Eurodollar accounts are essentially deposit accounts at a non-US bank denominated in USD. They are, as are all deposit accounts, debt instruments issued by that bank. These accounts, as you point out, are not subject to US regulations in the sense that US laws regarding bank deposits need not be complied with. A domestic USD checking account at Bank of America is regulated by the FDIC with insurance against fraud etc. For Eurodollar accounts these protections don't apply. (Other protections provided by their home-country laws might apply though.) However, if you were to actually try to transact in USD with that account, the transaction path would still touch an institution that has an account with the Fed. And hence be controllable by the US government. For example if you were to withdraw $50 in cash from your eurodollar account, the bank would still have to purchase the dollars (or more generally acquire them in some way) to give them to you. They cannot print the dollars themselves. The same thing applies to electronic transactions, except that now, there will be a corresponding set entires in the electronic ledgers of some US bank that has an account with the Fed. So for the purposes of sanctions-busting, Eurodollar accounts are no good. Eurodollar accounts are, of course, extremely useful for international trade. Most exporters will need a Eurodollar account to keep transaction costs low. Expats often hold a Eurodollar account with banks in their home countries to insulate them from exchange rate risk. There are a myriad other uses. But evading sanctions is not one of them.