- European financial leaders are concerned about overreliance on the US Federal Reserve for dollar liquidity during crises.
- They are proposing a pooled US dollar reserve system among EU central banks as a crisis backup fund.
- The move responds to fears of politicization of Fed swap lines after pressure from the Trump administration.
- Europe is also exploring dollar sourcing from non-US countries, including Asia and the Middle East.
- Japan is considering similar strategies to diversify from dependence on the Federal Reserve.
European financial officials have raised concerns over their heavy reliance on the US Federal Reserve to access US dollars during financial emergencies. This worry grew after the Trump administration reportedly pressured the Fed to consider political factors in its operations, casting doubt on the safety of emergency dollar loans. The Fed uses swap lines, a tool where it lends dollars to other central banks, which are now viewed as potentially “weaponized,” as stated in Reuters.
In response, some European officials are advocating for a combined dollar reserve pool among the central banks of EU member states. This “safety pot” would serve as an emergency fund to reduce dependency on the Federal Reserve during crises.
Additionally, plans are underway to increase system resilience by encouraging European central banks to identify and prepare for sourcing US dollars from countries outside the US, including locations in Asia and the Middle East. These measures include stress-testing financial scenarios where US dollar funding might become limited or unavailable.
The concerns stem from recent geopolitical actions, including tariffs and trade tensions imposed by the Trump administration on the EU despite it being a close ally. This has heightened European doubts about the reliability of dollar liquidity access.
Similar considerations are happening outside Europe, with Japan evaluating comparable approaches to reduce reliance on the Fed’s swap lines. Governor Kazuo Ueda commented, “It would be important to keep trying a multi-layered approach to things like swap lines. Doing something similar, or continuing to do something similar, would be important.”
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