• European policymakers are exploring mechanisms to pool dollar reserves from non-U.S. central banks, aiming to reduce reliance on Federal Reserve liquidity facilities.
  • The initiative is driven by concerns that U.S. dollar access could become politicized or restricted, particularly under a potential Trump administration.
  • Success hinges on deeper EU fiscal integration and could bolster the euro's international role, though significant political and structural barriers remain.

European financial officials are actively discussing plans to create a pooled reserve of dollars held by EU and other non-U.S. central banks, according to people familiar with the matter. The effort seeks to establish an alternative to the Federal Reserve's dollar swap lines, which have historically provided critical liquidity during global crises.

The discussions reflect growing anxiety in European capitals that the political landscape in the United States could jeopardize access to dollar funding during future emergencies. "There's a genuine concern that what was once considered a technical facility could become subject to political considerations," said one EU official involved in the talks, who requested anonymity because the discussions are private.

This contingency planning comes as markets weigh the possibility of Donald Trump returning to the White House and implementing policies that might restrict dollar access to allies. The Fed's swap lines were vital lifelines during both the 2008 financial crisis and the COVID-19 pandemic, providing European central banks with temporary access to U.S. dollars when market stress was most acute.

Beyond pooling existing dollar reserves, officials are also considering issuing more joint EU debt—often called common Eurobonds—to create additional safe euro assets. The goal is twofold: build a buffer against potential dollar scarcity while simultaneously strengthening the euro's stature as a global reserve currency. The euro currently comprises approximately 20% of global reserves, compared to the dollar's 58% share.

However, the initiative faces substantial hurdles. Creating effective pooled reserves requires intensive coordination among EU member states with often diverging economic interests and risk appetites. Previous efforts at deeper fiscal integration have frequently stalled over concerns about debt mutualization and loss of national fiscal autonomy.

A European Commission spokesperson declined to comment specifically on the reserve pooling discussions but noted that "enhancing the international role of the euro and strengthening Europe's economic resilience remain key priorities."

If successfully implemented, reduced reliance on dollar facilities could lower borrowing costs for European governments and corporations while insulating the EU economy from currency volatility or potential U.S. sanctions. Yet most analysts view the creation of a fully credible alternative to Fed backstops as a lengthy process requiring sustained political commitment that has often proven elusive in the EU.

Correction: An earlier version of this article misstated the euro's current share of global reserves. It is approximately 20%, not 22%.