The Monetary Fifth Column: The Eurodollar Threat to Financial Stability and Economic Sovereignty
Eurodollars are dollar-denominated deposit liabilities of banks outside the United States. Even though estimates of the size of the Eurodollar market exceed $5 trillion, these instruments are virtually unregulated. Legal scholarship has very little to say about Eurodollars, and the economic literature on the subject is geared toward economists and banking professionals rather than policy makers and attorneys. Furthermore, the economic scholarship is focused on describing the way Eurodollar markets function rather than critical examination of their nature and attendant risks. This Note is an attempt to get to the bottom of this ubiquitous yet mysterious financial instrument. It describes the nature and history of the Eurodollar and discusses potential challenges the Eurodollar market poses to financial stability and monetary sovereignty. It then examines the evolution of international bank regulation, pointing out why current measures are insufficient to address the risks posed by the Eurodollar. Finally, it considers possible solutions to these problems and proposes an approach to regulating the Eurodollar market consisting of a scheme of international reserve requirements.