Learning objectives
By the end you can:
- Define the eurodollar/offshore-dollar system as a balance-sheet fact (a dollar deposit liability of a bank outside the United States) and trace, T-account by T-account, how an offshore bank creates dollar credit without any US bank's balance sheet growing and without a reserve moving at the Federal Reserve. Compute the offshore credit multiplier and say what constrains it now that US reserve requirements are zero.
- Decompose an FX swap into its two legs and re-read it as a collateralised loan, who lends, who posts collateral, whose balance sheet expands, and why the repayment obligation is invisible to every published debt statistic. Size the market from the BIS's own numbers.
- Work covered interest parity forward and backward with correct day counts, price a forward from two money-market rates, invert a market forward into an implied funding rate, compute the cross-currency basis in basis points, sign it correctly, convert it into dollars of cost, and explain from balance-sheet costs why the arbitrage that "should" close it does not.
- Explain the global dollar backstop (swap lines and the FIMA repo facility) as balance-sheet operations: who takes FX risk, who takes credit risk, which balance sheets expand, and why the facility exists given that the Fed cannot lend eurodollars directly.
- Size Herstatt (principal) settlement risk against replacement-cost risk, explain the time-zone mechanism that creates it, describe how payment-versus-payment kills it, read the BIS's 2025 settlement measures, compute netting compression, and say why the rupee's absence from CLS forces a domestic answer.
- Explain novation, multilateral netting and the CCP default waterfall, compute the compression a CCP achieves over bilateral netting, walk a default down the waterfall to the last rupee, and state the honest trade, a CCP does not remove risk, it concentrates and mutualises it.
- Compute the settlement-cycle arithmetic of T+1: why margin scales with the square root of the horizon, what a one-day cycle releases, what it costs in FX funding and pre-funding, and situate the US (Rule 15c6-1, 28 May 2024) and Indian (SEBI T+1 from 27 January 2023; optional T+0) timelines.
- Distinguish retail from wholesale CBDC on the only axis that matters (who may hold the central bank's liability) read the two-tier distribution model, and compute the disintermediation and liquidity-coverage consequences of a retail conversion, including the design levers that bound it.
- Read a stablecoin as a balance sheet and stress it: reserve composition, attestation versus audit versus a fund's holdings disclosure, the redemption-liquidity tests a US government money market fund must pass and a "fully reserved" token need not, who earns the reserve income, and how to price an observed depeg into known impairment plus run premium.
- Situate monetary regimes (the trilemma, the "dilemma," the de facto taxonomy, managed floats, intervention and sterilisation arithmetic) and place every digital innovation correctly on that map: new rails do not change the regime unless they change who issues the unit of account.
- (Productivity objective: R10 duality.) Use AI and code to pull, normalise and reconcile plumbing data while running the verification that makes the output admissible, and know why unverified AI output about mechanisms is more dangerous here than unverified output about numbers anywhere else.
The duality, stated once (R10). Items 1–10 are the understanding objective the gate rewards; you earn the crown by drawing the balance sheets and doing the arithmetic yourself. Item 11 is the productivity payoff. The duality is sharper here than anywhere else in the program: elsewhere a wrong AI output is a wrong number, and a number can be recomputed; here it is a wrong story about how a system works, and a story can only be checked against a primary source that describes the mechanism. Verification in this module is bibliographic as much as arithmetic: name the document, cite the paragraph, then compute.