The weaponization of the Eurodollar

I'm in way over my head on this, but lower oil prices and the collapsing world economy are causing a Eurodollar liquidity crisis.

"Investors may have underestimated the degree to which a rising dollar transmits tighter monetary policy across an already misfiring global economy, especially when it is carrying US$10 trillion (+70% since 2008) in offshore Eurodollar debt. From a Chinese (especially) and EM standpoint in particular, it is becoming increasingly clear that the dollar has been “weaponised.” http://ftalphaville.ft.com/2015/09/24/2140580/all-about-the-eurodollars-redux/

A eurodollar can be defined simply as a dollar that is outside the borders of the United States.  However, I don't think it is that simple.  Obviously, physical cash can circulate outside the borders.  But for electronic dollars, I think there has to be some sort of connection to the US, like an account at a big bank, e.g. JP Morgan, or a correspondent relationship with one of the big banks.

However, even without the connection, two parties could agree on a transaction denominated in dollars, and then settle it based on the prevailing exchange rates.  This is no problem if it settles quickly.  However, if there is a long-term loan or time deposit, the problem arises.

If the dollar strengthens in value (which happens because for some reason everyone trusts it), then paying back the loan or deposit becomes much more costly.  This causes spiraling deflation, which is why oil prices and gold prices keep going down.  Of course the countries would prefer to sell oil and gold at higher prices, but they have loan payments due and have to liquidate assets in order to meet their obligation.

This isn't a problem in the US so we don't see the effects, but there is a $10 trillion elephant sitting on the world economy.  These are dollars not created by the Fed, but they still exist.  (Other entities besides the Fed can create money, I have written previously about that, but I haven't considered international banks creating dollars).  This could cause a global economic collapse.  And maybe the Fed would step in as a lender of last resort, and in exchange for its help, effectively demand oversight over banks that it is lending to.

The Fed does provide "swap lines" to other central banks like the ECB and BOJ, but it doesn't to China.  So this could be considered economic warfare against China, which must liquidate its (mostly treasury bond) assets.  This is a topic to research more.