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What is Eurocurrency?

By A. Leverkuhn
Updated May 17, 2024
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In the financial world, Eurocurrency is money that is deposited in foreign banks outside of a country. When these foreign deposits are called eurocurrency, they are primarily related to European countries, but over time, eurocurrency has become a term for any funds deposited in a foreign bank. The term should not be confused with the monetary unit know as the Euro. From the standpoint of the domestic bank, eurocurrency refers to funds that are deposited in a currency different from that country's own currency.

Some speculate that the term eurocurrency earned its kind of colloquial global use because of the unique diversity of the European continent. Many small countries are packed into a very small space on the land mass, with various laws and cultures meshing and colliding with each other. In modern times, the diversity of Europe has led to the European Union, and the subsequent Euro, a European unit of money that serves the entire EU community. In recent years, the national currencies of most European Union member countries were phased out to make way for the common Euro.

The extension of the word eurocurrency, which has nothing to do with the Euro, means that a deposit from an Asian country to an African country would also qualify as eurocurrency. The financial community has also coined terms for specific foreign currency deposits, such as the Eurodollar, which also does not refer to the European currency. A Eurodollar is a deposit of American money still denominated in dollars that is in a bank outside of the U.S. Similar terms like Euroyen have the same meaning relative to the home country of the currency suffix.

It's important for those dealing with these kinds of financial terms to understand that the term eurocurrency is something that emerged from informal use. Thinking that this term has to do with the currency of the European Union will result in misunderstandings about foreign deposits in domestic banks. It's also important to think about the way that some countries protect their national economies by limiting foreign deposits or foreign holdings.

In some countries, foreign currency has historically been an illegal asset for citizens. Though globalism has largely changed the way most of the world's nations view financial freedoms, some countries still have restrictions in place about changing denominations of funds, or moving them from one nation to another. Looking at how eurocurrency is used can give one insight into the kinds of rules and regulations that affect international money transfers.

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