Attacks on Fed independence undermine US dollar: ECB’s Villeroy

[PARIS] The US administration’s criticism of the Federal Reserve threatens the US dollar’s role in the global economy, according to European Central Bank Governing Council member Francois Villeroy de Galhau.

“Some recent US policies have undermined some pillars of the US dollar’s dominance by attacking the Fed’s independence, raising doubts as to US fiscal discipline, and imposing tariffs that diminish US integration with the global economy,” the French central-bank chief said on Tuesday (Jan 6) in Paris.

Speaking at an event marking France’s Group of Seven presidency, he said that “fears that the US could increasingly weaponize US dollar-based global payments are leading some jurisdictions to develop alternative payments systems – these US policies are undermining global investors’ confidence in US dollar assets and will likely fuel the gradual trend towards diversification.”

ECB policymakers have repeatedly highlighted that the uncertainty over the US dollar caused by President Donald Trump’s broadsides against Fed chair Jerome Powell are an opportunity for the euro to gain a more prominent position. Still, Villeroy said that a more multi-polar international monetary system could also be a “more stable one.”

“In this context, the creation of a euro-denominated safe asset merits our renewed attention,” he said. He repeated that the region could look at options including transforming part of sovereign debt into European debt and merging existing supranational borrowing.

Villeroy began his remarks commenting on French inflation. Data earlier on Tuesday showed annual price growth in December slowed to 0.7 per cent, a seven-month low.

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“It’s positive news for real incomes in France and for maintaining favourable interest rates,” the governor said. BLOOMBERG