E$ for Hire

Europe-minded Europeans can tune in Eurovision on TV, rent a Europcar, invest in the Eurofund. Their Eurocrats, helped by Eurogirl secretaries, run the Euromart in Brussels. And then there is the Eurodollar.

A mysterious form of currency to many, Eurodollars flit about the Continent by the billions, escaping a precise definition by economists and an exact count by statisticians. Most simply a Eurodollar, or E$, is an American dollar that has been deposited in a European bank or the European branch of an American bank.

Eurodollars have been used to finance municipal borrowing in Britain, imports in Italy and even a national-budget deficit in Belgium. More and more American companies, cajoled or clubbed by President Johnson into keeping their money at home, are financing expansion in Europe out of the Eurodollar pool. Says a Zurich banker, "U.S. companies in Europe are soaking up Eurodollars like a sponge." Last week the International Business Machines World Trade Corp., overseas arm of IBM, opened a $35 million line of Eurodollar credit.

Soviet Aid. Ironically the Russians helped create the Eurodollar ten years ago, and probably gave it its name. Soviet-controlled banks in Western Europe began accumulating dollar balances and, fearing that they might be frozen if deposited in the U.S., loaned them to other European banks. The cable address of the Soviet-backed bank in Paris was "Eurobank," and so financiers began asking for "Eurobank dollars" and finally just "Eurodollars."

Since then the Eurodollar has flourished, born of the American balance-of-payments deficit, and nurtured by the scarcity of cheap, flexible credit in Europe. It has created a mobile, truly international capital market, far more efficient than economists could have planned. Eurodollars have been for big-league operators, since the minimum unit of transaction is usually $1,000,-000, and they are deposited on a short-term basis, 90 or 180 days being the norms. The current earning rate of a 90-day Eurodollar deposit is 51% .

Among Friends. Eurodollars are handled by about 500 banks in Europe, a few informal phone calls among banking friends usually being enough to settle a major deal. There is often a relay of three or four banks between lender and borrower, which is one cause of criticism of the system. Another complaint is that Eurodollar operators violate a cardinal banking rule by borrowing short term and lending long term, but in fact E$ are mostly used for short-term financing of imports and exports. The Deutsche Bank Managing Director Hermann Abs dislikes the system so much that he will have nothing to do with Eurodollars. But most banks are enthusiastic.

Economists disagree on how many Eurodollars there are, and their estimates vary between $7 and $10 billion. The higher figure is probably the more accurate and, if so, Eurodollars have increased by about 10% in a year. As long as the U.S. balance-of-payments deficit continues, and European interest rates remain higher than in the U.S., the E$ funds are likely to grow.

Last week two American firms, the First National City Bank of New York and White, Weld & Co., investment bankers, made a major, joint innovation in the Eurodollar market. They introduced in London the certificate of de posit, which has been so successful in the U.S. since its creation in 1961 that it now accounts for 35% of all interestbearing deposits. With the minimum for C.D.s set at $25,000, the plan opens up the Eurodollar market to people operating on a much smaller scale. And since the certificates are negotiable, the depositor will not have his money frozen for a fixed period, as has been the case until now with Eurodollars. White, Weld estimates that there is a $1 billion market for the C.D.s.

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