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  • AutorenbildDom T. Ghazan

Eurodollars, Special Drawing Rights, and Central Bank Digital Currencies

Aktualisiert: 17. Okt. 2022

In a nutshell, all contemporary discussions pertaining to Central Bank Digital Currencies (CBDCs) must bear in mind the pivotal implications of Eurodollars and Special Drawing Rights on international trade and development. Essentially, focusing on more than mere ramifications for global trade finance, but more crucially on how their traits have permeated all aspects of human society globally. Naturally, discussing pertinent specificities would outlie the scope of a blog, which is why the matter shall only by swiftly delineated.

Unequivocally, the Eurodollar-system can be referred to as a prime example of innovation generated by regulation. Succinctly, between 1957 and 1960 the British authorities banned the use of GBP to finance foreign trade between third parties and also outlawed its usance for refinancing credits.[1] Hence, British financial institutions et al began availing of the USD for such operations—a modus operandi, that, back in the day, expedited the decline of the sterling vis-à-vis the dollar and is commonly referred to as Eurodollar.

Similarly elderly, the first international money on the basis of a basket of—now, five—national currencies had been conceived back in 1967. However, the Special Drawing Right, a unit of account that is employed by the International Monetary Fund, is not yet subject of a liquid market, since, it is predominantly employed by the public sector. Its contemporary rôle might best be referred to in IMF verbiage:

"The facility described in this Outline is intended to meet the need, as and when it arises, for a supplement to existing reserve assets."[2]

It bears noting, that in accordance with the Zeitgeist, dollar dominance has declined as a necessary corollary of the prevalent US share in global GDP. Precisely, this phenomenon is not owed to traditional externalities but much more to active diversification efforts by central bank reserve managers. In line with the aforementioned, nontraditional reserve assets—above all, the Chinese renminbi—have experienced significant market demand.[3]

Make of it what you will, the ripple effects of discussions on Central Bank Digital Currencies can be increasingly witnessed as well, not lastly, by China taking the helm with their e-CNY. In order to maintain global peace and security other Cryptocurrencies, as the next iteration of epitomizing human interaction and linchpin to a level global playing field in the Internet of Things—i.e. Metaverse—need to be leveraged by us embracing innovation too and mitigating risks by steadfast regulation.


[1] Catherine R Schenk, ‘The Origins of the Eurodollar Market in London: 1955–1963’ (1998) 35 Exploration in Economic History 222. [2] Christopher Wilkie, Special Drawing Rights (Oxford University Press 2012). [3] Serkan Arslanalp, Barry Eichengreen and Chima Simpson-Bell, ‘The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies’ (International Monetary Fund 2022) IMF Working Paper WP/22/58.

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