What is a Euro Deposit?
There are two distinct types of euro deposit. The older of the two refers to a deposit of foreign currency into a bank account outside the currency's home country; the deposit of U.S. dollars into a bank account in London is one example. Since the 1999 introduction of the euro currency, a euro deposit may also refer to a deposit of euros into a bank, typically in a European Monetary System (EMS) member country, but not necessarily so; a growing number of banks around the world offer deposit accounts in a range of currencies, the euro prominent among them. Both types are usually made for fixed terms, though this can range from one day — typically made only by corporations, large investment firms, and other banks — to one year or more. Interest rates on both types of euro deposits may be fixed for the term of the deposit, or floating, meaning the rate will be reset periodically over the deposit's term.
The origin of the older of the two types of euro deposit dates back to the post-World War II era, when dollars began to accumulate in European banks primarily as a result of the Marshall Plan. Overseas holdings of U.S. dollars subsequently grew rapidly in other regions, such as the the Arabian Gulf countries and Japan, as the dollar became the currency of international trade and finance and the U.S. began to run trade and current account deficits. London became the international financial center for what became known as the eurodollar market. With the sustained growth of global trade, this market grew tremendously, expanding to include "offshore" deposits of all the major currencies, including holdings of Japanese yen, known as euroyen; prior to the introduction of the euro, this included offshore deposits and securities of all the major European currencies.
The second, more recent, type of euro deposit is simply a deposit of euros into a bank, which may be a member of the EMS or outside it, typically for a fixed term. Rates on euro deposits over a range of standard terms are set daily by the European Central Bank. These are known as Euro Interbank Offer Rates, Euribor for short. To the degree that the euro appreciates, or strengthens, against their home currency, investors and savers from the U.S. and other countries outside the EMS stand to gain by making a euro deposit as the euro will be worth more of their home currency when the term of their deposit ends.
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