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These are dollar derivatives—a financial instrument that is redeemable by USD at a fixed exchange rate, which is backed (theoretically) by reserves. Eurodollar
by lottin 5y ago
These are dollar derivatives—a financial instrument that is redeemable by USD at a fixed exchange rate, which is backed (theoretically) by reserves. Eurodollars are just USD deposits held outside the US.
- BlueTemplar 5y agoNot only deposits, but also debts ?
- lottin 5y agoNo, debts are a different type of asset. Eurodollars are currency, i.e. cash and bank deposits.
- cturner 5y agoA bank deposit is a debt, right?
- lottin 5y agoNo, it's a deposit which you can withdraw at any time. Although some people argue that a bank deposit is technically a loan—from a legal perspective they might be characterised as a loan in some jurisdictions, from an economic perspective a deposit is cash and not a loan.
- BlueTemplar 5y agoBut then how do you get the multiplicative effect described in the article without any debt ??
- lottin 5y agoYou get a multiplicative effect because when banks lend they create new deposits (=new money) in the process. That doesn't mean that the deposits created in this way are debt. They are not, the deposits are money. The loan is debt. The loan is an asset in the bank's balance sheet, whereas the deposit is a liability. They explain it in more detail here: https://www.core-econ.org/the-economy/book/text/10.html#108-banks-money-and-the-central-bank https://www.core-econ.org/the-economy/book/text/10.html#108-...
- BlueTemplar 5y agoSo, "USD debt liabilities of non-US non-financial corporations" that make about one quarter of all eurodollars... aren't debt ??
- lottin 5y agoDebt liabilities are debt. Currency is not a debt liability.