European Central Banks Explore Alternatives to Fed Dollar Funding as They Seek to Consolidate Global Dollar Reserves

European financial regulators are evaluating an alternative to the Fed’s dollar funding facilities, aiming to broaden central bank liquidity sources and reduce external reliance. The debate centers on a framework to support USD reserves held abroad and to preserve global financial stability during episodes of market stress.

Interviews with more than a dozen European central banks and regulators reveal concerns that existing mechanisms could be weaponized in adverse scenarios, even as the Federal Reserve has provided assurances to calm markets. Officials stress governance and operational resilience as they assess reform options.

A White House spokesperson reaffirmed the administration’s commitment to maintaining the strength and influence of the dollar, while acknowledging practical challenges in consolidating external USD holdings. Analysts caution that any changes would likely be incremental and require cross-border cooperation and clear regulatory alignment.