Eurodollar

US dollars deposited in banks outside the United States, forming the backbone of global dollar-denominated lending and credit markets.

Eurodollars are US dollar-denominated deposits held at foreign banks or overseas branches of American banks. Despite the "Euro" prefix they have nothing to do with the euro currency — the name dates to the Cold War era when Soviet-bloc countries held dollar reserves in European banks to keep them outside US jurisdiction.

The eurodollar market is the world's largest source of short-term dollar funding. Multinational corporations, foreign governments, and financial institutions use it to borrow and lend dollars without touching the US banking system. Because these deposits sit outside Federal Reserve oversight, the market operates with fewer regulatory constraints and often reflects global dollar demand more directly than domestic money markets.

Eurodollar futures, traded on the CME, were historically the most liquid interest-rate futures contract in the world and served as a key benchmark for short-term borrowing costs. They were largely replaced by SOFR futures after the transition away from LIBOR in 2023, but the underlying eurodollar market remains critical plumbing for global finance.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.