European Officials Worry About Relying on US Fed for Dollars Under Trump
Some European central banking and supervisory officials are quietly questioning whether they can still depend on the U.S. Federal Reserve for dollar funding during financial crises, according to a Reuters report. While they believe it’s unlikely the Fed would stop providing this support, concerns have grown due to the Trump administration’s unpredictable policies.
The U.S. dollar is the world’s most important currency, and the Fed has long been a reliable source of dollar funding for central banks like the European Central Bank (ECB) during times of market stress. However, European officials have started informal discussions about whether the U.S. government might pressure the Fed to limit this support in the future.
These concerns stem from President Donald Trump’s break from traditional U.S. policies, such as imposing tariffs on allies and shifting positions on international issues like Ukraine. While the Fed is independent, some European officials worry that political pressure could eventually affect its decisions.
Despite these fears, there is no easy alternative to the Fed for dollar funding. European officials acknowledge that losing access to the Fed’s support could have severe consequences for global markets and financial stability. For example, in 2023, the Fed provided crucial dollar funding to the Swiss central bank, helping prevent a collapse of Credit Suisse that could have destabilized the global financial system.
The discussions among European officials are part of a broader effort to assess risks to the eurozone’s financial system. About 17% of eurozone banks’ funding is in dollars, making continued access to the Fed’s credit lines vital.
While the possibility of the Fed cutting off dollar funding is seen as remote, the talks reflect growing unease about the future of international cooperation under the Trump administration. ECB President Christine Lagarde has said the relationship with the Fed remains unchanged, but some officials remain cautious.
This report highlights the delicate balance of global financial systems and the challenges European officials face in preparing for potential risks. As the world watches U.S. policies evolve, the reliance on the Fed’s support remains a critical issue for Europe’s financial stability.
Credit: Reuters for original reporting and details.