Investing Basics · definition
Xenocurrency
A xenocurrency is a currency deposited, lent or traded outside its home country, such as dollars held in European banks. The broader modern term is eurocurrency.
A xenocurrency (from the Greek xenos, foreign) is any currency that is deposited, borrowed or traded outside its country of issue. Dollars sitting in a London bank account, yen lent by a bank in Singapore, euros held in New York: all are xenocurrency in the original sense of the word, coined by economist Fritz Machlup in the 1970s.
Key takeaways
- Xenocurrency means money used outside its home market, regardless of which currency it is.
- The dominant modern example is the eurodollar: U.S. dollars held in banks outside the United States.
- The prefix "euro" in eurodollar predates and has nothing to do with the euro currency.
- Offshore currency markets sit partly outside the home regulator's direct reach, which is both their attraction and their risk.
From xenocurrency to eurocurrency
The term xenocurrency itself is now rare; "eurocurrency" became the standard label after dollars accumulated in European banks during the Cold War (Soviet institutions preferred holding dollars outside U.S. jurisdiction). The eurodollar market grew into one of the largest funding pools in the world, and its benchmark rates (historically LIBOR, since replaced by SOFR-style rates after manipulation scandals) priced trillions in loans and derivatives.
Why offshore money matters
A bank outside the United States that takes dollar deposits is creating dollar liabilities the Federal Reserve neither insures nor directly controls. In calm times this deepens global liquidity and lowers funding costs. In stress, offshore dollar funding can evaporate, which is why the Fed extends swap lines to other central banks during crises, effectively lending dollars abroad to stabilise the system, as in 2008 and 2020.
Related vocabulary
Xenocurrency overlaps with, but differs from, foreign exchange: forex is the exchange of one currency for another, while xenocurrency describes where a currency is held and used. It also differs from a reserve currency, which is about central banks' chosen store of value; the dollar happens to be both the leading reserve currency and the leading xenocurrency.
Frequently asked questions
Is cryptocurrency a xenocurrency?
No. A cryptocurrency has no home jurisdiction in the same sense, so the onshore/offshore distinction that defines xenocurrency does not apply.
Why does the word survive at all?
Mostly in glossaries and finance education, as the X-entry tradition of financial dictionaries shows. Practitioners say eurocurrency, eurodollars or offshore funding.
Sources
This entry is for education only. Investing Value describes how financial concepts work; it does not provide investment, tax or legal advice, and nothing here is a recommendation to buy or sell any asset.