Can the EU rely on dollar funding by the Fed with Trump in play? 
Dollar Funding Under Trump
Reuters reports Some European officials weigh if they can rely on Fed for dollars under Trump
Some European central banking and supervisory officials are questioning whether they can still rely on the U.S. Federal Reserve to provide dollar funding in times of market stress, six people familiar with the matter said, casting some doubt over what has been a bedrock of financial stability.
But the European officials have held informal discussions about this possibility – which Reuters is reporting for the first time – because their trust in the United States government has been shaken by some of the Trump administration’s policies.
President Donald Trump has made a sharp break from long-standing U.S. policy in several areas, such as appearing to endorse Russia’s position on Ukraine, raising questions about U.S. commitment to European security and imposing tariffs on its allies.
In some European forums where participants assess potential risks to the financial system, these officials have discussed scenarios under which the U.S. government might pressure the Fed to suspend the dollar backstops, two of the sources said.
Some officials have been gaming out whether they can find alternatives to the U.S. central bank, the two sources said. In times of market stress, the Fed has provided the European Central Bank and other major counterparts with access to dollar funding.
The takeaway from these discussions: there is no good substitute to the Fed, said the six sources, who include senior ECB and European Union banking supervisory staff with first-hand knowledge of the conversations.
The sources all requested anonymity to speak candidly about the private deliberations.
The ECB and the Fed declined to comment for this article. The White House did not respond to a request for comment.
Remarkable Discussion
My answer is the same as what sources told Reuters.
“The sources consider it highly unlikely the Fed would not honour its funding backstops — and the U.S. central bank itself has given no signals to suggest that.”
However, that Europe sees any need for this discussion is remarkable in and of itself.
The Fed is still independent, at least for now. But it’s fair game to assume the US Treasury might pressure the Fed to do whatever the Hell Trump wants.
Weaponization of Swift
Please consider the March 2022 Richmond Fed article What Is SWIFT, and Could Sanctions Impact the U.S. Dollar’s Dominance?
The recent removal of Russian banks from the SWIFT messaging system has highlighted the importance of payments in supporting economies. But the weaponization of SWIFT has also left some commentators worrying about the loss of the U.S. dollar’s dominance, as it might drive banks and firms to other substitutes. This Economic Brief discusses the economics of SWIFT and explains why emigrating from the U.S. dollar may be more difficult than we thought.
The Richmond’s Fed’s assessment is self-serving. Yet, it appears accurate. Importantly the Fed even admits weaponization, the emphasis was mine.
Dollar Weaponization Expands
On May 13, 2023 I commented Dollar Weaponization Expands – FDIC Message to Foreign Depositors Is Don’t Trust the US
Systemic Risk Assessment
The FDIC made a “systemic risk exception” for Silicon Valley Bank to protect depositor funds beyond its limit of $250,000 per bank account.
FDIC’s stated “insurance” is for US depositors only. But the exception to make all US depositors whole means foreign depositors bear 100% of responsibility for the collapse of SVB.
Since bond holders rate higher than unsecured depositors, and the FDIC had significant losses rated to SVB, foreign depositors may get zero cents on the dollar.
If you are a foreign depositor at any small or midsized bank, the FDIC is affirming that you better get your money out now.
What Does China Do With a Dollar That’s No Longer Risk Free?
On March 18, 2022, I asked What Does China Do With a Dollar That’s No Longer Risk Free? Buy Gold?
Q&A With Michael Pettis
Mish: Will China now hold more commodities and fewer dollars despite the pro-cyclical nature of it? More Euros or Yen over dollars? More gold?
Michael Pettis:
- “Given that so much of China’s “reserves” are now indirect and held by state-owned banks (all the increase since 2017) it’s hard to say what the currency composition of China’s reserves are.
- “Officially the US dollar is still by far the biggest component, but it is slowly declining.
- “I expect that this will continue as far as the official reserves go but, as you know, the hard part of reducing the US dollar component of your reserves is figuring out what the alternative should be, and with such high and growing reserves (once you include the indirect reserves at the state-owned banks) that is a very difficult question to resolve.”
Is China Dumping US Treasuries?
I post https://twitter.com/LukeGromen/status/1648364877302452225
“Strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.”
This question comes up every year, and every year my answer is the same.
No, Luke Gromen, China masks its US treasury holding.
Here’s the correct take.
Here’s another take.
Setser “The dollar’s share of reserves didn’t actually change at all in 2022.“
What About China?
Setser “Looking at reserves without also looking at the foreign assets of state banks and SWFs is so … 2012.“
China masks its reserves in SOEs, something I have commented on many times.
Still More Fairy Tales of US Dollar Demise That Didn’t Happen
For discussion, please see my April 26, 2023 post Still More Fairy Tales of US Dollar Demise That Didn’t Happen
Sorry for the digression, but it’s an important one.
It is currently very difficult to avoid the dollar.
More Gold Backed BRIC Currency Silliness on Dethroning the Dollar
On July 7, 2023, I noted More Gold Backed BRIC Currency Silliness on Dethroning the Dollar
If Russia or China had a gold-backed BRIC, what would that even mean? Would you trust it? Buy it?
The BRIC is literally of zero threat to anyone.
Truth Social Post
“The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER. We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”
“They can go find another “sucker!” There is no chance that the BRICS will replace the U.S. Dollar in International Trade, and any Country that tries should wave goodbye to America.”
On November 30, 2024, I commented Trump’s Obvious Bluff Over BRICS Currency Proves He Is Clueless on Trade
Let’s start with the obvious. First, Trump is bluffing. Second, he is clueless as to what the real problem is.
Global Consumers of Last Resort
The US is stuck with the reserve currency because we have the largest, most open capital markets in the world, the world’s largest bond market, and a far better business climate than the EU, China, or Japan.
BRICS Irony
Trump demands a weak dollar.
True competition to the dollar in the form of alternate reserve currencies would actually help.
Trump Wants a Weak Dollar But Needs a Strong One
On March 16, 2025, I commented Trump Wants a Weak Dollar But Needs a Strong One
One way to get a weaker dollar is for the US to run huge budget deficits and for the Fed to not follow through with interest rate hikes.
But that conflicts with Trump’s promise to balance the budget. And balancing the budget would strengthen the dollar.
Strengthening the dollar would help with inflation but Trump wants a weak dollar.
Trump wants “made in America” but the US is the highest cost producer or nearly everything non-agricultural. So good luck with exports.
Trump demands no competition to the dollar, but that is one thing propping up the dollar!
It’s all so damn convoluted that Europe is now concerned over dollar funding.
US dollar avoidance is not easy, as discussed, but Trump is greatly increasing the incentive for nations to try.
I suggest the EU needs to focus on building an alternative to SWIFT, as soon as possible. The EU half-heartily tried, but gave up.
Try again, better this time.
Swift avoidance would not end dollar reliance, but it would help the EU find ways to avoid US sanctions. And a sanction showdown with the EU is coming.
I can see why Europe would not trust this administration for anything. With the economy coming to a devastating slowdown worldwide, inflation rearing its ugly head again in the U.S. and tax revenues falling off a cliff, our problems are only beginning.
The narcissistic toddler in the White House is running around with a machine gun yelling “ready, shoot, aim” again!
“See me sign the paper with my biggie signature? See me!”
Brent Johnson, and his “Dollar Milkshake Theory” covers this very well.
I am meeting him in May in P.R. face-to-face as a Client of his.
I don’t understand the comment about Europe wanting/needing to get away from Swift to protect themselves from …something.
Swift is located in Europe and run by Europe. EG: they are the ones effectively blocking the Black Sea ceasefire by refusing to allow the necessary commercial financial transactions that the ceasefire would depend on. Said Black Sea ceasefire deal is something that the U.S. wanted and went to considerable lengths to try and put in place.
Unbelievable, Europeans worry now.
They were happy when they confiscated other people’s money.
They know only how to bully others.
Now they worry. They’re scared to their shadow.
Amazing, how many right wingers have turned on Europe. Our longest allies since WW2. Now, you all love Russia. A country that is bent on WW2. All our boys will either have to join the fight against Putin or join the fight AGAINST democracy. What do you want? MR PEACE… MY ASS
WW3. Correction. So many wars. So little time.
It’s because Europe after three years of war in the Ukraine still has not increase their defense spending by the amount that is needed. They really do expect the US to do the work and take the risks. Additionally they keep talking the maximus goal, defeating Russia completely, without putting up their own troops at risk and spending as little money as possible. Their hypocrisy is just so open and disgusting. It is hard to respect most European leaders now. Most are into ridiculous postering.
I assume Doug that you are so disgusted and perturbed by this behaviour and your perceptions that you’ll be headed back to the land of milk and honey pronto. Au-revoir France.
The war in the Ukraine that the Obama Government fermented BTW, you omitted that bit.
You’ll be re-assured to know that airline prices to the US are sinking as more of us abandon our holiday plans so your trip home shouldn’t be too expensive. hiring a container for your possessions should also be incrementally cheaper.
Bye bye
As a European (not of the modern Disney history learning), I have to correct you here. Not all of Europe were allies when Hiter was doing well.
— More than half of Europeans had embraced, intellectually, eugenics and theories of superior race.
— More than half were either openly or closeted antisemitic.
— Most were ridiculing the idea of America, especially the Northern Europeans. There were three ideological camps, with the US-loving camp being the smallest. This did not completely stop after WWII.
— Up to even 1958, Belgium had “human zoos”. In the same year, Law 4000/1958 was enacted in Greece, which forbid people to dress and act “American, like teddy boys” – violators had their hair shaven and then forcefully paraded on the streets with big signs “I’m a teddy boy”.
The then right-wing Prime Minister, Konstantinos Karamanlis, was pro-Europe and mildly anti-American.
— Europeans just “tolerated” Americans to get rid of Hitler and help them rebuild and protect from the USSR. Europeans were ideological allies of America only briefly after the Berlin wall fell.
The USSR reality had forced them into NATO – without that threat, there is a chance that Europe would have eventually become an enemy of the USA.
— German historian Heinz Richter claimed a few years ago that Greece should pay reparations to Germany because Greek villagers violated war conventions when they killed the Nazi parachuters in the battle of Crete. That’s just a sample for you to taste the sentiment.
Cheers.
The major event that eventually triggered the war in Ukraine was the Maidan Revolution of 2014, which was instigated by the US, especially the CIA and the State Department. I suspect that most Americans who voted for Biden in 2020 had no idea who Victoria Nuland was and the role she played in the Maidan Revolution as a senior member of the Obama administration. She was not a member of the Trump 1 administration and retired late in the Biden administration when she could not get confirmed by the Senate to her former boss’ position.
Mike Shedlock
10 hours ago
Starting now for at least 30 hours, I will be in economic limbo. I have posts scheduled, and some very good ones, but I will not be current on news including liberation day.
I am on an overnight photography trip, Reflection Canyon Utah. Unfortunately, the weather sucks, at least that is the current forecast and conditions. But the trip is on.
This means I will be very delayed in approving comments. Don’t repeat them as I won’t see them.
Some regular posters have their comments regularly go into hold. I believe ABCD is one. CzarChasmReigns and Lil’ mister are two more I am aware of. There are more. I don’t know why, but likely changing IP address.
If you don’t see your comments for over a day this is why.
PapaDave or someone, please post this as a comment on my automated Posts on Tuesday and Wednesday.
I have 3 more today and one scheduled for tomorrow morning.
Thanks
Bill McBride has a construction post up today showing that manufacturing construction has stalled already in the US. Once the money from the Inflation Reduction Act ran out the steam went out of it. Nobody is willing to use their own money only other people’s money.
Long term planning is not possible with Mr Trump at the helm. Would be better for the gov. to take equity positions in these things rather than grants and loans. They can sell the winners to their donors after the runs are on the board.
The construction phase is almost over. Filling these factories with new equipment and training workers and engineers is phase II. It started during Trump1, cont during Biden, good to go under Trump2.
Trump has been in office two months and is still laying out the economic framework of his term. And yet, you can’t see factories starting to be built at an incredible pace. I guess you think we should just cancel every thing and go back to what people voted against.
China might devalue the RMB. The EU might rebuild their industries to strengthen the Euro and their economy,. The Euro will compete with the US dollar. They need Putin. They are likely to impose tariffs on China and Turkey. Erdogan might send his S-400 to T-4 airbase near Palmyra Syria, thus he will face the Israelis and get what he wants from Trump, including a third term.
The US Dollar’s demise is like Hemingway said if bankruptcy. ” Slowly at first then quickly’.
Hey, they’re probably freaking like I am on Agencies like the FDA being blown apart. Incredible and incompetent.
>>And a sanction showdown with the EU is coming.
Why, @mish?
The fed has been bailing out the euro feudal elite for a long time.
Starting in the early 2000’s, Canada sold off its official gold holdings and bought US dollar denominated debt. According to Google, Canada was out of its official gold holdings by early 2016. Bad timing or what?
Gordon Brown sold off British gold in 2000. Since then gold price went up to the moon. The same Canada sold off its gold holding and the same thing happened.
And Canada just made the guy with the most responsibility for that their new Prime Minister so he can really go to town on his policies.
PBoC needs to break the link to the dollar and float the Yuan, then they can become masters of the globe and the global reserve currency. Yeah. So why don’t they do it?
They would have to run a huge trade deficit for it to work.