Tariffs trigger financial concerns, Europe quietly assesses whether the Federal Reserve can continue to provide dollar liquidity during the Trump era

As the tariff storm intensifies, European Central Bank officials have begun to express concerns about the risks of the "weaponization" of the dollar, with the Federal Reserve potentially cutting off dollar supply at any moment, making the search for alternatives an urgent issue.

On Saturday, media reports indicated that European Central Bank officials and financial regulators are quietly questioning a pillar of the dollar financial system: during times of market stress, can they still rely on the Federal Reserve for dollar financing? This concern is spreading within the European financial community and could have far-reaching implications for the global financial stability framework.

Several informed sources revealed that some European officials are actively exploring whether alternative dollar supply channels can be found to replace the Federal Reserve. This unprecedented movement indicates that Europe's trust in the U.S. financial system is declining.

After all, the anxiety of European officials is not unfounded. Following the outbreak of the Russia-Ukraine conflict in 2022, the U.S. and its allies quickly froze approximately $300 billion of the Russian central bank's foreign exchange reserves, turning the "weaponization of the dollar" from theory into reality.

Geopolitical Tensions Intensify Concerns Over Dollar Weaponization

In past financial crises, the currency swap lines established between the Federal Reserve and the European Central Bank have played a crucial role in providing emergency dollar liquidity to European banks. These swap agreements were first widely utilized during the 2008 financial crisis and again became key tools for stabilizing financial markets during the COVID-19 pandemic in 2020.

However, the critical issue is that these swap agreements are entirely voluntary, and the Federal Reserve can refuse to initiate or expand the lines at any time without providing any reason. This structural asymmetry places the European financial system in a potentially vulnerable position.

It is worth mentioning that the anxiety of European officials is not unfounded. Following the outbreak of the Russia-Ukraine conflict in 2022, the U.S. and its allies quickly froze approximately $300 billion of the Russian central bank's foreign exchange reserves, turning the "weaponization of the dollar" from theory into reality. This precedent indicates that the U.S. has the capability and willingness to use the dollar financial system as a geopolitical tool.

Some analysts point out that although the U.S. and Europe currently maintain a close alliance, the prospect of Trump potentially returning to the White House forces European officials to consider the worst-case scenario. If U.S.-European relations deteriorate in the future, the assurance of dollar financing provided by the Federal Reserve could vanish at any moment.

Meanwhile, European monetary authorities are exploring feasible ways to reduce dependence on the dollar. However, these efforts face harsh realities: the dollar remains the core of the global financial system, dominating international payments, foreign exchange reserves, and cross-border lending. A European Central Bank official stated that exploring alternatives is a responsible approach, but it must also be acknowledged that the dollar will continue to dominate the global financial system for the foreseeable future, and developing truly viable alternative mechanisms may take years or even decades