Back around 45 years ago, the United States dollar was becoming an extremely popular currency around the world, yet there were still a slew of regulations and restrictions that prevented dollars from being exported from the United States. The purpose of this was to keep the grip of regulation on the trade of the dollar, as well as to minimize the US external trade deficit.

With this growing popularity of the US dollar, so too did the popularity of exporting the dollar out of the United States grow, and so the Eurodollar market was born in international financial centers such as London and the Cayman Islands where non-U.S. banks could trade in dollars without the glaring oversight of the Federal Reserve. The designation of 'Eurodollar' does not make it European as such, but rather a Eurodollar deposit is any deposit denominated in dollars outside of the United States.

Eurodollar Deposits Are Never Denominated In Euros

There is nothing that is decidedly European about the Eurodollar market; the prefix 'Euro' in this instance simply means any currency deposits held in a country where it is not the official currency.

Remember the statement above: The Eurodollar market has to do with US dollars that are traded in international banks without the restrictions that are placed on the trade of the dollar in the United States. It is important not to confuse the Eurodollar market with the Euro, which is a currency formed by the European Central Bank with the creation of the European Union in 1999. The Eurodollar market has its roots going back to the 1960s, when the US dollar was highly regulated and efforts were made to minimize trade of the dollar outside of the United States.

Increase Wealth With Automated Eurodollar Sweeps

The idea of a Eurodollar sweep is very similar to a currency swap, where the deposits in one currency are transferred overnight into a different currency and the transferred back into the first currency the next morning so as to reap higher interest gains overnight. There are now many banks that perform automated Eurodollar sweeps (typically with high-balance checking accounts that would not normally earn interest), where your funds are transferred overnight into Eurodollar accounts in bank branches that are outside of the United States so that they can earn higher interest during the night hours and then transfer back into your normal account in the morning.

What is the point of a Eurodollar sweep? Well remember that the point of the Eurodollar market in the first place is to trade in dollars outside of the juristiction of U.S.-based financial institutions like the Federal Reserve or the IRS. The point of a Eurodollar sweep is the same as a currency swap: to earn higher interest overnight by exchanging your funds into a different denomination that has a higher interest rate. The only difference with a Eurodollar sweep is that the funds remain in denominated in dollars, they are just dollars that are located outside the continental U.S. and so can usually earn higher interest rates.