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De-dollarization is imperative! British media: EU plans to reduce its dependence on the dollar to challenge the dollar's hegemony before Biden's inauguration

iconJan 19, 2021 13:13
Source:FX168

The European Union will warn that global markets are too dependent on the dollar, British media reported on Saturday. The EU is looking for ways to curb Europe's vulnerability to US sanctions and other financial risks, a challenge to the hegemony of the dollar. In a few days, Biden will be inaugurated as president of the United States.

A draft European Commission policy document seen by the British media reveals the extent of the EU's disappointment after four years in office under the Trump administration. The Trump administration's policy underscores the dominance of the United States and its currency in the global financial system.

The document highlighted the EU's difficulty in upholding its independence in the face of Trump's sanctions on Iran and cited them as evidence of the need to "protect" the EU from "illegal extraterritorial applications" of such measures.

"the Trump era highlights our weaknesses, and even if he leaves office, we still need to solve these problems," said an official of the committee. "this is about the EU's place in the world-with economic and financial power commensurate with our size."

Trump's Iran strategy has had a direct impact on Europe's financial infrastructure, such as the Swift payment information system and the (Euroclear) and Clearstream securities depository of the European Bank for Clearing.

The US sanctions against Iran mean that the EU must establish a special purpose vehicle to facilitate the payment of legitimate trade between the EU and Iran-a difficult process.

"if a third country forces the EU financial market infrastructure to comply with its unilateral sanctions, the EU should formulate measures to protect EU operators," the report said. "

The document highlights the EU's ambition to become more self-reliant in a range of areas, including the financial sector, after the Trump administration broke transatlantic norms. The European Commission will approve the report on the eve of Biden being sworn in as US president on Wednesday, while the EU has pledged to seek a new era of cooperation with the US government after the upheavals of the Trump era.

Other plans in the white paper aimed at strengthening the EU's strategic autonomy include strengthening the regulation of foreign acquisitions by making use of the EU's newly established foreign direct investment review system.

The document said the proposed acquisitions should be reviewed to determine whether they "would make it easier for EU target companies to comply with such extraterritorial sanctions" and could be blocked on national security grounds.

According to the draft, the EU also needs to find ways to improve the role of the euro based on the experience and lessons of COVID-19 's pandemic. "Global financial markets are too dependent on the dollar to ease financial tensions and risks of stability," the report warned.

EU officials have warned that changes could be made to the draft before the European Commission passes it on Tuesday.

The EU has long sought to promote greater use of the euro, such as in commodity contracts, to increase its financial and economic autonomy.

The specific steps proposed in the report include plans to review EU financial benchmark regulation and encourage them to be denominated in euros. At present, most of them are based on the dollar.

Policymakers want to find alternatives to crude oil, and major benchmarks such as Brent and West Texas Intermediate are pegged to the dollar. Natural gas and hydrogen should play a role as markets for the euro, the paper said.

The EU believes that strengthening the global role of the euro will "protect the economy from foreign exchange shocks and reduce dependence on other currencies".

"it will also help achieve common global goals, such as greater resilience of the international monetary system, a more stable and diversified global monetary system, and a wider range of options for market operators, all of which will make the global economy less vulnerable," the report said.

The European Commission is also concerned that the EU has become increasingly dependent on non-EU investment banks, which "during the financial crisis." It may choose to reduce its presence in the EU and focus on the domestic market. "

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