De-dollarisation could speed up with US isolationist policies, analysts say

Written by Stephania Spaceti

LONDON (Reuters) – If the Federal Reserve, the basis for global financial stability, is withholding dollar funding for allies during times of tension, the world can significantly reduce its dependence on the currency, creating a “double sword” for the United States.

Reuters said on Saturday that some European European banking and supervisory services officials are asking whether they can still rely on the US Central Bank to provide such funding because their confidence in Washington has shaken the Trump administration policies.

In times of stress on the market, the Federal Reserve provided the European Central Bank and other major counterparts to reach the dollar financing. The dollar is the dominant currency of economic trade and capital flows.

Analysts George Sarvilus and Oliver Harvey said in a memorandum of customers on Thursday, as they evaluated possible scenarios and cited Reuters article.

Without Backstops, in the short term, “liquidity in dollars will lead the dollar financing costs to the top, which leads to a sharp estimate of the US dollar.”

They added that the financial stress will spread to the American financial system as well, and may include the effects of shrinkage “to sell fire assets to American assets.”

While the Federal Reserve is independent, “the American administration can have an indirect impact across ethical in addition to appointing the Federal Reserve Board,” the analysts said.

“In theory, the United States can use the availability of swaps in a selective manner, as Quid Pro Quo for other objectives.”

The risk of getting rid of vanishing

For Jane Fuli, the head of Rabobank strategy, the interrogation of some European banking and supervisory officials to support the dollar in the Federal Reserve “Change of the Sea” in relations between American and European allies over the past few months and “the field of thirsty effects of the American .”

“Trump’s policies and foreign policies have forced Europe on the road towards low dependence on the United States, and this is likely to mean a desire to decrease dependence on the dollar,” Foley said in a note.

“Trump threatened the countries that tried to cancel the additional definitions. It is irony that his isolation policies may push the direction.”

Deutsche Bank analysts also said that the withdrawal of the FBI swap lines “has the ability to create massive financial instability in times of stress.”