it moves the dollars claims between the banks. one bank removes the liability the other adds it.
Discussion
what is more fun is when the credit created as eurodollar cannot be repaid because of the defaults (usually when interest rates get higher).
behold boom-bust cycle
How? What happens to the balance sheets? And how is it moved actually?
As I understand it, they remove the liability to depositor/sender and the target bank adds a liability to the receiving account.
deutche bank's reserves in FED (NY branch?) are decreased, morgan's increased.
They clear the operation via something like swift or similar system.
It's been a while since I dig into this field tho.
Eurodollar bank does not usually have an account with the FED. Otherwise they are part of normal dollar system.
Fun thing is - swift does not actually move the money, it's a messaging protocol to agree on how the movement is done.
well, not directly, but there must be a corresponding bank (account) which does. Otherwise they couldn't endup in a US bank, could they?
(I know that swift is more of a protocol).
How they settle balance sheets is probably up to them, isn't it? It's really been a while since I read how all that works.
Yes. Banks have accounts with other banks with balance. They can top them up short term with repo, long term with fx trade. It's basically a deposit account called nostro account. The key here is that eurodollars switch to dollars backed by reserves (central bank money) there.