Offshore banking is a term used for places, many of them islands, whose very liberal banking laws attract deposits in Eurocurrency. Eurocurrencies, including Eurodollars, are deposits in currencies other than the currency of the country in which the deposit is held.

Foreign bank branches in these islands, which are called offshore financial centers, merely act as administrative or accounting units for the Eurocurrency transactions which originate from their Head Offices or other branches overseas. The transactions are merely entered into the books of the branches in the host country as a deposit or a loan, on the advice of Head Office or other branches.