Fed independence crisis could trigger global shift away from dollar, warns ECB official

A top European banking official said Tuesday that Washington’s recent moves against the Federal Reserve are putting the US dollar’s global standing at risk.

Francois Villeroy de Galhau, who sits on the European Central Bank’s main decision-making body, laid out his concerns during a speech in Paris on January 6. He pointed to three areas where American policy choices are creating problems for the currency that has long served as the world’s primary reserve asset.

The French central banker said the White House’s attacks on Fed independence, questions about America’s budget management, and new trade barriers that isolate the country from world markets are all eating away at the foundations that made the dollar dominant.

“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,” Villeroy told an audience gathered for an event celebrating France’s leadership of the Group of Seven nations.

Dollar weakness creates an opening for euro

He added that worries about Washington potentially using dollar-based payment systems as a political weapon are pushing other countries to build their own alternatives. These developments are shaking investor trust in dollar-backed investments and will likely speed up the slow but steady movement toward using multiple currencies in international trade, he said.

Officials at the European Central Bank have been saying for some time that the uncertainty surrounding the dollar – largely stemming from President Donald Trump’s public criticism of Fed Chair Jerome Powell – creates an opening for the euro to take on a bigger role in global finance. However, Villeroy suggested that a world with several major currencies sharing power might actually be more steady than the current system.

During his remarks, he brought up the idea of creating a safe investment product denominated in euros, saying “the creation of a euro-denominated safe asset merits our renewed attention.” He mentioned possibilities like converting some national government debt into European-level debt and combining existing multinational borrowing programs.

Villeroy’s criticism comes at a time when economic conditions in France support his arguments. Fresh data shows France’s yearly inflation rate dropped to 0.8% in December 2025, marking its lowest point in seven months. This figure came in below the 0.9% recorded in both October and November, and under what analysts had predicted. The decline happened mainly because energy costs fell more sharply, dropping 6.8% compared to a 4.6% decrease previously, with fuel prices leading the way down.

This puts Villeroy in a strong position to make his case. While the American government is pushing the Fed to lower interest rates to help a struggling economy, Villeroy can point out that the ECB’s independent, numbers-based strategy has already brought inflation well under the 2% goal without any political meddling.

Search for new Fed chair intensifies debate

Meanwhile, the debate over Fed independence is moving from theory to practice as Trump’s search for Powell’s replacement heats up. Fed Governor Stephen Miran told Fox Business on Tuesday morning that he hasn’t discussed becoming the next Fed chair with Trump and isn’t pursuing the position. He said he’s not on the shortlist, calling the actual candidates “extremely credible.”

Trump is now looking at a final group that includes Kevin Warsh, who previously served on the Fed’s board, and Kevin Hassett, who advises the White House on economic matters. Powell’s term running the Fed ends in May.

Right now, betting markets show Hassett as the front-runner, given his close ties to Trump. However, experts quoted in recent reports from Investopedia and the Wall Street Journal caution that picking Hassett could result in a Fed that coordinates with the White House on interest rate decisions – precisely the kind of arrangement Villeroy argues will damage worldwide confidence in the dollar. Andrew Brenner, vice chairman at NatAlliance Securities, wrote: “The Fed is a process, not a one-man show.“

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