Part 6/14:
The Eurodollar system underpins global dollar liquidity, functioning as a reservoir and conduit for dollar-based credit worldwide. It evolved to serve the needs of an increasingly interconnected world, but in doing so, created a complex web of cross-border dollar liabilities, loans, and asset-backed securities.
When turmoil hit, especially in Europe and across international markets, this interconnected system became fragile. European banks, heavily reliant on short-term dollar funding, faced massive liquidity strains as their sources of dollar financing dried up. They borrowed from U.S. banks—pushing hundreds of billions of dollars through the system—only to find that funds were scarce, and liquidity was evaporating.