The eurodollar — the monetary system nobody can count
Eurodollars are not fake dollars: they are credit dollars created outside the United States, which nobody can tally for lack of an issuer. $14.7 trillion measured, more than $80 trillion of obligations hidden in swaps. The stakes, the effects of the Iran war, stablecoins and four scenarios.
There is a dollar that the Federal Reserve never printed, that nobody counts, and on which the financing of world trade nonetheless depends. It is called the eurodollar. It sits at the heart of every financial crisis of the past fifty years, and it is almost always badly explained — either ignored, or presented as a giant fraud. It is neither.
First, a misunderstanding to correct
One often reads that eurodollars are "fake dollars", or that most of them do not really exist. That is wrong, and the error stands in the way of understanding everything else.
A eurodollar is simply a dollar recorded in an account at a bank located outside the United States. The prefix "euro" does not refer to the European currency: it dates from a time when these deposits were housed in London and Paris. Today, a dollar deposited in Singapore, the Cayman Islands or Dubai is every bit as much a eurodollar.
These dollars are not counterfeit. They are created in exactly the same way as the money at your own bank: through credit. When a London bank grants a ten-million-dollar loan to a Brazilian company and credits its account, ten million dollars of deposits appear. The Fed did not issue them. They are nonetheless a perfectly real legal claim, used to pay suppliers, repay debts and settle cargoes.
When your bank grants you a mortgage, it does not go and fetch banknotes from the central bank: it writes a sum into your account. That money is real — you buy a house with it.
The eurodollar is the same thing, but in dollars and outside the United States. Banks around the world create credit dollars, outside US jurisdiction.
The real peculiarity, then, is not the nature of these dollars. It is their situation: they are issued by banks that have no access, as such, to the central bank that issues the currency. A European bank can refinance in euros with the ECB. For its dollars, it has no natural lender of last resort. The whole problem of the eurodollar lies in that asymmetry.
The five layers of the dollar
To see clearly, one has to distinguish several forms of "dollar" that have neither the same issuer nor the same visibility.
| Layer | Who creates it | What backs it | Measured? |
|---|---|---|---|
| Base money | The Federal Reserve | The Fed itself | To the dollar |
| Deposits in the US | US banks, through credit | Access to the Fed, FDIC insurance | Precisely |
| On-balance-sheet eurodollars | Banks outside the US, through credit | The soundness of the issuing bank | Partially |
| Synthetic dollars | Swaps and forward FX contracts | The counterparty to the contract | Off balance sheet |
| Tokenised dollars | Stablecoin issuers | Reserves in Treasury bills | By attestation |
Where this system comes from
The eurodollar market was born in the mid-1950s. Soviet banks, fearing that Washington would seize their assets in the middle of the Cold War, chose to keep their dollars in London and Paris rather than in the United States. US regulation accelerated the movement: Regulation Q then capped the rates paid on deposits in the United States, and offshore deposits escaped both that cap and reserve requirements. The Bank of England let it happen. London became the capital of a dollar that was American in name only.
In the 1970s, the system changed scale. The oil-exporting countries, suddenly flooded with dollars, deposited them in international banks, which in turn lent them to the importing countries. This is the famous petrodollar recycling. It gave rise to the emerging-market debt crisis of the 1980s, when the sharp rise in US interest rates made those dollar debts unsustainable.
The system long had its own reference price: the eurodollar rate, known as LIBOR, which underpinned hundreds of trillions of dollars of contracts. After the manipulation scandals, it was abandoned and permanently replaced in 2023 by SOFR, a rate calculated from real repo transactions in the United States. Symbolically, the world's most important market lost its in-house thermometer.
Why nobody can count eurodollars
This is the question that comes up most often, and the answer is more interesting than a mystery: there is no figure because there is no issuer to keep one. Five structural reasons explain this opacity.
1. No central register
The Fed knows its base money because it issues it. Eurodollars, by contrast, are created by thousands of banks, in dozens of jurisdictions, with no common authority centralising their balance sheets. There is no "meter" to consult.
2. Jurisdictions that see only part of the picture
The Bank for International Settlements (BIS) collects data from reporting banks in some fifty countries. It is the best source available, but it depends on what each country submits, with notable gaps in certain offshore centres and among non-bank intermediaries.
3. Unavoidable double counting
A dollar deposited in a bank in London can be lent to a bank in Hong Kong, which relends it to a bank in Dubai. At each step, a deposit and a claim appear. Adding up gross balance sheets inflates the total artificially; netting them requires knowing every chain, which nobody can do.
4. A question of definition
What do we call a "eurodollar"? Deposits only? Loans? Dollar bonds issued outside the United States? Depending on the perimeter chosen, the figure varies by a factor of one to six. None of them is lying: they are not measuring the same thing.
5. And above all: the debt that appears on no balance sheet
FX swaps and forward contracts create obligations to pay dollars at a future date. Under accounting standards, these commitments are recorded off balance sheet: they do not appear as debt. In 2022, the BIS estimated that these instruments represented more than $80 trillion of dollar payment obligations, of which about $25 trillion was owed by non-bank entities outside the United States and more than $35 trillion by non-US banks. That amount alone exceeded the combined outstanding stock of Treasury bills, repos and dollar commercial paper. The total outstanding stock of FX derivatives passed $100 trillion at the end of 2023.
A Japanese insurer holding US bonds often hedges its currency risk with a swap: it commits to return dollars in three months. Economically, that is a short-term dollar debt — it will have to find those dollars. In accounting terms, it does not appear among liabilities.
Multiply that by thousands of institutions and you get a mountain of debt that nobody sees in the balance sheets.
What we can measure, and what we cannot
The most solid measure comes from the BIS global liquidity indicators. At the end of March 2026, dollar credit extended to non-bank borrowers outside the United States stood at $14.7 trillion, up 7.3% on the year. About 30% of that total relates to emerging-market countries. In the first quarter of 2026 alone, it rose by $793bn — the largest quarterly increase since the start of the Covid crisis.
Not measured does not mean not real. It means the system has grown faster than the instruments designed to observe it.
It is true that most dollar exposure outside the United States escapes direct measurement. It is false to conclude that these dollars are fictitious. The confusion comes from a slide: we go from "most of it is not counted" to "most of it does not exist". The $80 trillion of swaps are enforceable contractual commitments. On the day of maturity, real dollars have to be delivered. That is precisely what makes the system dangerous.
The stakes: why this system concerns everyone
The heart of the risk lies in a double mismatch.
- A currency mismatch. Companies, banks and states outside the United States owe dollars, but earn their revenues in euros, yen, pesos or rupees.
- A maturity mismatch. A large share of these debts is very short-term — a few days to a few months — and has to be rolled over constantly, whereas the assets they finance are often long-dated.
As long as the rollover goes smoothly, nobody notices anything. The day dollar lenders pull back, all these borrowers look at once for dollars they have no power to create. There is no eurodollar central bank to supply them.
The paradox of the crisis: the dollar rises, even when America is the cause
This is the most counter-intuitive consequence of the system, and it was borne out in 2026.
When the war against Iran broke out in late February 2026, the dollar appreciated even though the United States was a party to the conflict. The DXY index touched 99.695 on 9 March, a multi-month high, and the dollar gained against the yen — normally regarded as a safe haven — towards 157.7. On 11 September 2026, the DXY was trading around 99.1, up 1.6% on the year.
The mechanism is not mysterious. An oil shock raises the dollar bill of every importing country. Anxious offshore borrowers seek to secure their dollars. Demand for dollars climbs, and so does its price — which in turn weighs on all dollar-denominated debts, measured in local currency. The loop feeds itself.
The Fed, lender of last resort to the whole world
Since the eurodollar has no central bank, the Fed ended up playing that role, without having sought it. It does so through swap lines: it lends dollars to other central banks, in exchange for their own currency, so that they can redistribute them to their banks.
These lines reached a record outstanding amount of $583bn in December 2008, then $449bn at the end of May 2020, at the peak of the Covid crisis. They are permanent with five central banks: the ECB, the Bank of Japan, the Bank of England, the Swiss National Bank and the Bank of Canada. On 9 September 2026, the outstanding amount was only $101 million.
That last figure is information in itself. Despite the war, the oil shock and the prospect of a rate hike, no dollar shortage is being expressed through the official channel today. The major central banks do not need to draw on the Fed. The strain exists, but it is paid for in prices — the cost of dollar funding — rather than in access.
In April 2026, Treasury Secretary Scott Bessent publicly defended the swap-line arrangement and mentioned requests for permanent lines coming notably from the United Arab Emirates, whose economy was suffering the effects of the war. The point is significant: the countries without a permanent line are precisely those that would be most exposed in a dollar liquidity crisis.
Granting a swap line or not is a sovereign US decision. It amounts to choosing which banking systems the Fed will rescue in the event of a dollar shortage. In a fragmented world, this technical instrument becomes a first-rate diplomatic lever — and those excluded from it have every reason to look for alternatives.
What the Iran war has changed, and what it has not
Petrodollar recycling has seized up
For fifty years, the Gulf played a central role in the supply of offshore dollars: its dollar oil revenues came back to be invested in US markets. The war has disrupted this circuit.
The sovereign wealth funds of the Gulf Cooperation Council countries hold more than $2 trillion of US assets. The dollar's share of global foreign-exchange reserves has fallen to about 57%, from 71% in 1999.
According to an opinion column published by Bloomberg in April 2026, the loop through which Gulf states recycled their surpluses into Treasuries in exchange for the American security guarantee is broken. The author stresses that the Saudis are now borrowers rather than lenders, and that the main sources of offshore dollar liquidity today are Asian manufacturing exporters rather than the Gulf monarchies.
The yuan at Hormuz: a signal more than a shift
In March 2026, a senior Iranian official told CNN that Iran could allow a limited number of tankers through the Strait of Hormuz if cargoes were settled in yuan. Several Chinese analysts, quoted by the South China Morning Post, urged caution about the real scope of this arrangement.
According to the Atlantic Council, G7 financial officials believe that participants in mBridge — the central bank digital currency settlement platform bringing together China, the UAE and Saudi Arabia, among others — could use it during the war. No data allows this to be verified: neither the People's Bank of China nor the participating banks are required to publish their volumes.
But the offshore system has grown
This is the most counter-intuitive fact of the year, and it flatly contradicts the narrative of a "de-dollarisation" accelerated by the war.
In the first quarter of 2026 — that of the war and the closure of Hormuz — dollar credit outside the United States rose by $793bn, its largest increase since Covid. At the same time, euro credit to non-residents grew even faster, by 12% on the year, and its share of foreign-currency credit rose from 22% to 28% between end-2022 and early 2026.
The two movements coexist. The world is not leaving the dollar: it is borrowing more of it. But it is diversifying at the margin, and it is the euro — not the yuan — that benefits most in the credit figures.
Eurodollar 2.0: stablecoins
A new player has joined the system without public debate filing it in the right box.
The GENIUS Act, signed on 18 July 2025, regulates dollar-backed stablecoins in the United States for the first time: 1-for-1 reserves in high-quality liquid assets, monthly publication of their composition, an annual audit for the largest issuers. On 10 September 2026, the total stock of stablecoins stood at $302.8bn, of which $183.4bn was Tether's USDT.
According to its own attestations, Tether — a company registered in the British Virgin Islands — held about $140bn of direct and indirect exposure to US Treasuries at the end of March 2026.
A stablecoin such as USDT is, functionally, a dollar held outside the US banking system, by a foreign issuer. That is the very definition of a eurodollar.
The difference is a big one: instead of being created through credit, it is backed by reserves placed in Treasuries. The offshore dollar, which once fled the American system, now finances American debt.
The September backdrop: the system caught in a vice
The 60-day ceasefire expired in mid-August. In early September, US strikes on Larak island and Iranian attacks on two bases used by US forces in Jordan reignited hostilities; Brent climbed back above $92. On the US side, employment surprised strongly to the upside in August (+162,000 jobs, against 53,000 expected) and inflation came in at 3.4% year on year, with core inflation up 0.3% on the month. Fed funds futures now price roughly an 80–90% probability of a rate hike at the FOMC on 15–16 September.
This combination is exactly the one that puts the eurodollar under strain from both ends at once. On one side, the oil shock raises importers' dollar needs. On the other, a Fed rate hike makes every borrowed dollar costlier. Offshore funding becomes both more necessary and more expensive.
The US repo market has already shown its fragility: on 31 December 2025, the SOFR rate jumped to 3.87% and banks drew $75bn from the Fed's standing repo facility. The Financial Stability Board warned in February 2026 about vulnerabilities in these markets. These period-end strains are the first place where a dollar scarcity would become visible, well before the swap lines.
Four scenarios for the eurodollar system
Subjective weightings, six-month horizon, to be revised with each data release. The directions describe transmission mechanisms, not price targets.
| Scenario | Prob. | DXY | Offshore $ cost | EM currencies | 2-year yield | Gold | Swap lines |
|---|---|---|---|---|---|---|---|
| De-escalation — Hormuz reopens | 15% | ↓ | ↓ | ↑↑ | ↓ | ↓ | → |
| Conflictual status quo | 45% | ↑ | ↑ | ↓ | ↑ | → | → |
| Escalation and tightening | 25% | ↑↑ | ↑↑ | ↓↓ | ↑ | ↑↑ | ↑↑ |
| Network fragmentation | 15% | ↑ | ↑↑ | ↓ | → | ↑↑ | ↑ |
Green = up · red = down — irrespective of what is desirable. A rise in the cost of the offshore dollar is bad news.
Lower oil mechanically reduces importers' dollar bill. The scarcity loop loosens from below. The disinflation that follows gives the Fed the option of pausing, which eases the cost of funding from above.
- Dollar
- The DXY falls. The yen is the main beneficiary, helped by its improving terms of trade.
- Offshore
- The cost of dollar funding eases. Dollar credit outside the United States continues to grow, now fuelled by appetite for carry rather than by need.
- Emerging markets
- Strong rebound in the currencies of energy-importing countries, whose dollar debt lightens in local-currency terms.
- Watch
- Too rapid a return of short-term dollar borrowing, which would set up the next strain.
Hormuz remains disrupted without a total closure, and the Fed raises rates. The dollar is expensive but available: the strain shows up in prices, not in access.
- Dollar
- DXY supported more by the rate differential than by safe-haven demand.
- Offshore
- The cost of dollar funding stays high. Strains appear at quarter-ends and year-ends in the repo market, as on 31 December 2025.
- Emerging markets
- Slow, steady pressure on countries with heavy dollar debt and small current-account surpluses.
- Watch
- The euro's share in international credit, which keeps rising: diversification proceeds without rupture.
The dangerous scenario for the system. Importers need more dollars at the very moment the Fed is making them costlier. The scarcity loop runs at full speed and the swap lines become indispensable again.
- Dollar
- Sharp rise in the DXY, including against the yen and the euro, penalised by their energy imports.
- Offshore
- Dollar funding costs soar. Borrowers without access to a swap line — the Gulf, Asian emerging markets, Africa — are hit first.
- Fed
- Open dilemma: inflation argues for tightening, financial stability for supplying dollars. The swap lines allow it to do both — providing liquidity abroad without cutting rates.
- Gulf
- Risk of reverse recycling: Gulf states selling dollar assets to fund their budgets, instead of buying them.
- Watch
- The Fed's weekly H.4.1 release: a move in swap lines from a few hundred million to several tens of billions would be the alarm signal.
A shock that moves the crisis elsewhere — a Russian operation against a Baltic state, secondary sanctions targeting yuan settlements — and makes access to the dollar an explicit instrument of pressure. Maximum paradox: demand for dollars jumps in the short term, while the incentives to do without them strengthen in the long term.
- Dollar
- Short-term rise on a liquidity reflex, but erosion of its share in new settlements.
- Offshore
- Funding costs rise sharply for countries seen as politically exposed.
- Alternatives
- Acceleration of parallel circuits: mBridge, China's CIPS payment system, stablecoins. Gold, the only reserve without a counterparty, benefits markedly.
- Watch
- Central bank gold purchases and requests for new swap lines, which measure distrust better than speeches do.
Myths and realities
| Claim | Verdict | What to remember |
|---|---|---|
| "Eurodollars are fake dollars." | False | They are real bank claims, created through credit, like any bank money. |
| "Nobody knows how many there are." | True | For structural reasons: no issuer, no register, off-balance-sheet debts, double counting. |
| "The Fed does not control this system." | In part | It does not control the quantity, but its rate sets the cost and its swap lines make it the lender of last resort. |
| "The system is bound to collapse." | Not established | It went through severe crises in 2008 and 2020, and was supported each time. The risk is real; the outcome is not written. |
| "The war is accelerating de-dollarisation." | In part | Dollar credit outside the United States grew 7.3% on the year. Diversification exists, but it mostly benefits the euro. |
| "Stablecoins are eurodollars." | Largely true | Functionally, yes: dollars held outside the US banking system. But backed by reserves, not created through credit. |
The indicators that tell the truth before the commentary does
- The outstanding amount of Fed swap lines, published weekly in the H.4.1 release. It stands at $101 million today; any move to several billion would signal a real shortage.
- The SOFR rate and use of the standing repo facility, particularly at month-ends, quarter-ends and year-ends.
- The cross-currency basis on euro-dollar and yen-dollar swaps: the more negative it becomes, the costlier it is to obtain dollars synthetically.
- The BIS quarterly global liquidity indicators, the only consolidated measure of dollar credit outside the United States.
- Gulf countries' Treasury holdings, published monthly by the US Treasury, to gauge the state of petrodollar recycling.
The eurodollar is not a fraud, it is an architecture: a credit dollar created everywhere except in the United States, with no central bank of its own, whose real size escapes all measurement because its largest part sits off balance sheets.
Its fragility lies not in its volume, but in its permanent need for renewal. That is why crises hit it through liquidity, why the dollar rises when everyone is afraid, and why the Fed has become, without having intended it, the world's central bank. In the current configuration — oil shock and a hiking Fed — it is this mechanism, far more than de-dollarisation, that deserves attention.
Methodology note and sources
Each factual block carries its level of reliability: Established for a fact corroborated by a primary source or reference media, Reported for single-source information, unconfirmed or opinion analysis, Inference for a reasonable deduction that cannot be directly verified. The estimate of off-balance-sheet dollar debt dates from 2022: it is the most recent published by the BIS, and its order of magnitude is corroborated by the stock of FX derivatives at end-2023. The scenario weightings are subjective and describe transmission mechanisms, not price paths. This article is an analysis for information purposes; it constitutes neither investment advice nor a recommendation to take a position.
- BIS — global liquidity indicators, end-March 2026
- BIS — international banking statistics, Q1 2026
- BIS — the dollar debt of FX swaps
- BIS — press release on hidden dollar debt
- BIS — FX derivatives outstanding, end-2023
- Schenk — the origins of the eurodollar market in London
- Federal Reserve — swap lines
- Congressional Research Service — swap lines and Covid
- Dallas Fed — swap lines in the face of dollar shortage
- FRED — weekly swap line outstanding
- Brookings — understanding swap lines
- CNBC — Bessent, the war and swap line requests
- CNBC — the dollar as the conflict broke out
- AEI — the dollar as safe haven and the Iran war
- Fortune — petrodollar and petroyuan
- Bloomberg Opinion — the petrodollar loop
- CFR — petrodollars, myths and reality
- Atlantic Council — Tehran's toll booth and mBridge
- SCMP — Chinese caution on the yuan at Hormuz
- Richmond Fed — the GENIUS Act
- Stablecoin supply tracker
- FSB — repo market vulnerabilities
- Federal Reserve — repo markets and the Fed's balance sheet
- CNBC — August 2026 inflation
- CNBC — August 2026 jobs
- Al Jazeera — resumed strikes and oil