Peer-to-peer file-sharing systems are responsible for a significant share of the traffic between Internet service providers (ISPs) in the Internet. In order to decrease their peer-to-peer-related transit traffic costs, many ISPs have deployed caches for peer-to-peer traffic in recent years. We consider how the different types of peer-to-peer caches—caches already available on the market and caches expected to become available in the future—can possibly affect the amount of inter-ISP traffic. We develop a fluid model that captures the effects of the caches on the system dynamics of peer-to-peer networks and show that caches can have adverse effects on the system dynamics depending on the system parameters. We combine the fluid model with a simple model of inter-ISP traffic and show that the impact of caches cannot be accurately assessed without considering the effects of the caches on the system dynamics. We identify scenarios when caching actually leads to increased transit traffic. Motivated by our findings, we propose a proximity-aware peer-selection mechanism that avoids the increase of the transit traffic and improves the cache efficiency. We support the analytical results by extensive simulations and experiments with real BitTorrent clients.