European Central Banks Explore Alternative to Fed Dollar Backstop

European financial stability officials are considering pooling dollars held by non-U.S. central banks to reduce reliance on Federal Reserve funding. This debate arises from concerns over the Trump administration's impact on global finance, including Fed independence and the potential weaponization of dollar facilities.

European financial authorities are in discussions to develop an alternative to the Federal Reserve's dollar swap lines, aiming to decrease dependency on U.S. financial support amid shifts under the Trump administration. The talks focus on pooling dollar reserves among non-U.S. central banks, a move that could ensure financial resiliency.

The discussions stem from uncertainties surrounding U.S. policies and the potential risks of weaponizing the Fed's financial facilities. Concerns peaked with Trump's 'Liberation Day' tariffs and the uncertainty about Fed independence, prompting discussions among European central bankers about exploring independent resources.

Despite doubts about the feasibility of dollar pooling, European officials continue to explore various measures to enhance financial resilience. These include increasing scrutiny over lenders and developing alternative funding strategies in regions like Asia and the Middle East, while continuing to recognize the vital role of the Fed in global financial stability.

(With inputs from agencies.)