Ironic Birth of the Eurodollar Market
One of capitalism’s great ironies is that the Eurodollar market, one of the most important financial markets used by capitalists, was fathered by the Soviet Union. In the early 1950s, during the height of the Cold War, the Soviets had accumulated a substantial amount of dollar balances held by banks in the United States. Because the Russians feared that the U.S. government might freeze these assets in the United States, they wanted to move the deposits to Europe, where they would be safe from expropriation.(This fear was not unjustified—consider the U.S. freeze on Iranian assets in 1979 and Iraqi assets in 1990.) However, they also wanted to keep the deposits in dollars so that they could be used in their international transactions. The solution was to transfer the deposits to European banks but to keep the deposits denominated in dollars. When the Soviets did this, the Eurodollar was born.