At one time, economics actually cared about eurodollars. Maybe it was because the thing was so new, it was a hot, sexy topic, the kind of strange and unusual deviation from the norm that can grasp someone’s attention and hold it. Perhaps it was the way in which it all began, an entire monetary system clandestinely sorted together out of almost thin air.

Paul Einzig, one of the first to notice and comment on eurodollars, would say in the early 1960’s that bankers practically begged for him not to write about it. There was some real danger to the system, no one really sure what might happen if authorities eventually stepped in. They never did, though we will never really be sure why they didn’t.

In 1970, Klaus Friedrich, then an assistant professor at Penn State, wrote for Princeton University’s Studies in International Finance, “One of the most striking aspects of the rapidly growing Euro-dollar literature is the fact that so much has been written on the basis of so few data.” We can very much appreciate that second one. There is practically no data still today.

Rapidly growing literature? In 1970, yes. Scientific curiosity in the ascent of econometrics, however, was snuffed out by mathematic irregularities. Simply put, eurodollars blow up DSGE. Therefore, Economists placing every emphasis on their regressions and statistics have for decades pretended eurodollars don’t exist as money.

The lack of data Professor Friedrich lamented obviously remains a frustrating deficiency almost a half-century later. We have very little to go on apart from prices. For central bankers, therefore the public, that far-too-often means they are left confused over price movements (“transitory”) even for big things like the dollar. 

We know the eurodollar is there, but of the main questions, who, what, where, when, how, we only really know “who.” We’ve always known it’s banks.

Friedrich again:

At any stage of the process of intermediation, which normally involves interbank transactions, dollar balances may be converted into other currencies and passed on in the form of balances in other curencies. If the other currency is not the domestic currency of the country in which the conversion takes place, the deposit becomes part of the broader Euro-currency market. A bank in Switzerland, for example, may convert a Euro-dollar deposit into a Euro-sterling claim on a bank in France. The terminal stage of Euro-dollar intermediation in this case is a bank rather than a nonbank borrower. [emphasis added]