Eurodollars: the offshore dollar, the debt no one sees in full

The most important dollar for global financial stability is not the one that circulates in the United States, but the one that lives outside it. Japanese banks, European insurers, emerging-market companies, pension funds: all borrow, lend and fund themselves in dollars without ever touching American soil. This system, the eurodollar, weighs tens of trillions, and a large part escapes both balance sheets and statistics. When it seizes up, the Federal Reserve must play firefighter to a blaze it can barely see. After repo and shadow banking, here is the offshore floor of the dollar’s plumbing.

A eurodollar is a dollar held outside the US banking system, with no link to the euro currency. The term dates from the 1950s and 1960s, when dollar deposits accumulated in London, both to escape American regulation and because some actors preferred to keep their dollars out of Washington’s reach. The prefix simply designates an external dollar. Since then, this market has become the international layer of the dollar: non-American banks accept dollar deposits and lend in dollars, creating dollar credit entirely outside the borders and beyond the Fed’s direct reach.

The visible part: offshore dollar credit

The BIS, the only institution to map this system, tracks the dollar credit granted to non-bank borrowers located outside the United States. At the end of 2025, this outstanding reached $14.3 trillion, up 8.5% year on year, the strongest increase since 2014, carried by a weak dollar. For comparison, euro credit outside the euro zone stood at €4.9 trillion, up 11%, while yen credit outside Japan fell 4.9% after the unwinding of the carry trade. Dollar credit to emerging economies alone reached $4.3 trillion, against $3.2 trillion a decade earlier.

Taken together, international credit, cross-border and in foreign currency, represents about 38% of world GDP. It is the measurable part, the one that appears in bank balance sheets and recorded bond issuance. It is already considerable. Yet it is only the visible tip.

The missing debt: FX swaps

Beneath this visible part hides a far larger mass, lodged in foreign-exchange swaps. In a swap, a Dutch pension fund or a Japanese insurer borrows dollars and lends euros or yen on the way out, then does the reverse on the way back. The operation resembles a repo, but with a currency for collateral. The crucial difference: these dollar payment obligations are recorded off balance sheet, in an accounting blind spot. They do not appear in classic debt statistics.

The BIS has tried to size this missing debt. In its reference estimate, on 2022 data, non-banks located outside the United States owed close to $26 trillion through these instruments, double their on-balance-sheet dollar debt, and up sharply from the $17 trillion of 2016. For non-American banks, this off-balance-sheet amount exceeded $39 trillion, more than ten times their equity. Most of this debt is very short term, which creates permanent refinancing needs and, therefore, a squeeze risk at every strain.

Why it is a systemic risk

The problem is not size in itself, but the combination of short-term funding, an opaque off-balance-sheet, and total dependence on a dollar issued elsewhere. When conditions tighten, holders of dollars outside the United States all seek to refinance at the same time, and the offshore dollar becomes brutally scarce. That is what happened in 2008, then in March 2020: the FX swap market froze, and the Federal Reserve had to open swap lines with the major central banks to re-inject dollars into the global system.

Yet the Fed then acts as firefighter to a blaze it can barely see. As the BIS stresses, the authorities intervened in 2008 and 2020 with little information on who owed what and where. The lender of last resort of the global dollar steers partly blind, on a debt that appears nowhere in the balance sheets it supervises. It is precisely the zone of opacity this journal seeks to illuminate.

The offshore floor of the same machine

The eurodollar does not live apart. It funds itself on the same markets as repo, it houses part of non-bank intermediation, and offshore centres like the Cayman Islands concentrate a growing share of cross-border credit. It is the international layer of one and the same system, where liquidity is manufactured on constrained, leveraged balance sheets, and where an ever-larger part escapes measurement. The question is not whether this offshore dollar is systemic, it obviously is, but how much longer we will accept supervising it with statistics that ignore half of it.

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Primary sources: Bank for International Settlements, global liquidity indicators, data at end-December 2025 (dollar credit to non-banks ex-US at $14.3 trillion, strongest growth since 2014; euro and yen credit outside their zone); BIS, Quarterly Review of December 2022, Borio, McCauley and McGuire, “Dollar debt in FX swaps and forwards: huge, missing and growing” (off-balance-sheet dollar debt estimated at about $26 trillion for non-banks ex-US and more than $39 trillion for non-American banks, on 2022 data); BIS, “FX swaps and forwards: missing global debt?” (Quarterly Review, September 2017); McGuire and von Peter, “The US dollar shortage in global banking and the international policy response” (BIS Working Papers, 2009). Figures and dates verified one by one.