Odd Lots Lots More with Lev Menand on the Eurodollar Market Now
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Jan 17, 2025 Lev Menand, an associate professor of law at Columbia, delves into the eurodollar market's pivotal role in the global financial system. He discusses its historical context, drawing parallels to the 2008 crisis, and emphasizes its current valuation of $13 trillion. Menand raises concerns about offshore dollar liabilities and the regulatory challenges they pose. The conversation also touches on the emerging presence of stablecoins and their potential to reshape financial dynamics, questioning whether they might replace eurodollars as a financial staple.
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Eurodollar Significance
- The eurodollar market, now at $13 trillion, is more significant than uninsured domestic deposits.
- It drives US dollar monetary expansion and poses the primary systemic risk.
Swap Lines and Ambiguity
- Dollar swap lines give confidence in eurodollars but create ambiguity about US government backing.
- This ambiguity makes the market susceptible to runs during crises.
1930s Banking Crisis
- The 1930s banking crisis showed how even with a support system like the Federal Reserve, ambiguity in backing can cause systemic collapse.
- The Fed's inaction during the failure of the Bank of the United States fueled uncertainty, leading to widespread bank runs.