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1、The global capital market: Performance the growth rate of international banking transactions 26% per year.,Factors for explanation,the banks desire to escape domestic government regulations on financial activity. the desire by some depositors to hold currencies outside the jurisdictions of the count
2、ries that issue them.,How big is the Eurocurrency market?,In the mid-1990s, the size of the Eurocurrency market stood at around $8 trillion. Roughly 45% of the Eurocurrency market is dollar-denominated.,How Eurocurrencies are created,The typical Eurocurrency deposit is a non-negotiable time deposit
3、with a fixed term to maturity ranging from overnight to five years.,Attractiveness of Eurocurrencys interest,American,Sample in page 651653,German company BMW,sold a car,Citibank,pays with check $ 40000,购买美国国库券？,购买美国存款证？,购买欧洲美元存款,英国银行Barclays,Have any dollars escaped abroad?,A reshuffling of reserve
4、s between banks accounts at the Fed and a corresponding shift in deposits from the bank losing reserves to the one gaining them. The U.S. monetary basethe sum of the banking systems reserves at the Fed and the currency supplydoes not change. Because the U.S. monetary base equals the liabilities side
5、 of the Feds balance sheet, which has not changed, no reduction in the U.S. money supply has to occur for the Eurodollar supply to rise.,No dollar escaped abroad! However, if Barclays lends part of the $40000 to customers, the Eurodollar supply can rise by more than $40000, but there is still no mig
6、ration of dollars from the U.S. to Europe.,Supply of Eurodollars rises!,the supply of Eurodollars rises by $75,000 = $40,000 deposited at Barclays by BMW +$35,000 deposited at Deutsche Bank by Philips U.S. monetary base is unaffected!,The $40,000 paid out by the U.S. auto buyer who initiates all thi
7、s, always finds its way back to the U.S. banking system. Once again, the expansion in the volume of Eurodollars can occur without any dollars ever having to “leave” the United States.,The growth of Eurocurrency Trading,Three reasons for the growth of offshore banking activities: the growth of world
8、trade; government financial regulations (including taxes); political considerations Emerge of Eurocurrency market in Chinese version,Growth of Euro-Currency Market,Eurodollars were born in the late 1950s, a response to the needs generated by a growing volume of international trade. European firms in
9、volved in trade frequently wished to hold dollar balances or to borrow dollars. Europeans often found it cheaper and more convenient to deal with local banks familiar with their circumstances. In 1957, the British government prohibited British banks from lending pounds to finance non-British trade.
10、In order to avoid losing this lucrative business, British banks began financing the same trade by attracting dollar deposits and lending dollars instead of pounds. The British government took a laissez-faire attitude toward foreign currency activities. As a result, London became-and has remained-the
11、 leading center of Eurocurrency trading.,Growth of Euro-Currency Market,During the 1950s, the Soviet Union acquired dollar (largely through sales of gold and other raw materials). It feared the U.S. might confiscate dollars placed in American bands if the Cold War were to heat up. So instead, Soviet
12、 dollars were placed in European banks. The Eurodollar system mushroomed in the 1960s as a result of new U.S. restrictions on capital outflows and U.S. banking regulations. Arab members of OPEC accumulated vast wealth as a result of the oil shocks, but reluctant to place most of their money in Ameri
13、can banks for fear of possible confiscation. Instead, these countries placed funds with Eurobanks.,Effect of Regulatory Asymmetries,Eurocurrency benefited governments discriminate between deposits denominated in the home currency and those denominated in others and between transactions with domestic
14、 customers and those with foreign customers. Domestic currency deposits are heavily regulated as a way of maintaining control over the domestic money supply, while banks are given much more freedom in their dealings in foreign currencies.,Effect of Regulatory Asymmetries,Freedom from reserve require
15、ments is probably the most important regulatory factor that makes Eurocurrency trading attractive to banks and their customers. Eurodollar deposits are available in shorter maturities than the corresponding time deposits banks are allowed to issue in the United States.,Effect of Regulatory Asymmetri
16、es,In 1981, the Fed allowed resident banks to set up international banking facilities (IBFs) in the United States for the purpose of accepting time deposits and making loans to foreign customers. IBFs are not subject to reserve requirements or interest rate ceilings, and they are exempt from state and local taxes. But an IBF is prohibited from accepting deposits from or lending money to U.S. residents. Technically speaking, a dollar de
