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The Bank of England has quietly asked several major lenders to test their ability to withstand a sudden shock to the U.S. dollar system, according to a report from Reuters citing three sources familiar with the matter. This cautious yet significant step highlights growing international anxiety about the global financial system’s reliance on the U.S. dollar, especially as political tensions and economic uncertainty swirl around Washington.
At the heart of this move is a concern that recent policy decisions and rhetoric from the Trump administration, especially repeated attacks on the independence of the Federal Reserve, may be weakening global confidence in the U.S. dollar. As the world’s dominant reserve currency, the dollar plays a critical role in everything from international trade and investment to emergency central bank funding mechanisms. Any instability in its usage could have sweeping global consequences.
Sources reveal that the Bank of England’s Prudential Regulation Authority (PRA) has asked certain banks to review and stress-test their exposure to the U.S. dollar. The PRA specifically instructed them to evaluate their funding plans and dependency on dollar-denominated liquidity, especially in the short term. In one instance, a major global bank headquartered in the UK was asked to simulate a scenario where the U.S. dollar swap market freezes completely, a drastic yet not implausible situation that would paralyse short-term funding options and international banking operations.
According to one of the insiders, no bank, regardless of size, could survive such a disruption for more than a few days. The entrenched dominance of the dollar in cross-border financial transactions makes it virtually irreplaceable in the short term. Any major shock to the availability of dollars would not only affect trade and banking but could ripple through asset markets, commodities, and even monetary policy in other countries.
This development adds to a growing list of concerns that global regulators are now actively monitoring. The politicisation of the Federal Reserve, highlighted by Trump’s persistent public criticism of Fed Chair Jerome Powell and hints at a possible dismissal, has raised alarms among financial institutions and central banks worldwide. Such instability undermines trust in the U.S. central bank’s autonomy and, by extension, the global system that depends on its steady hand.
While the Bank of England hasn’t issued a public statement on the matter, the behind-the-scenes activity reveals just how fragile the balance of international finance can be. With rising inflationary pressures, evolving tariff policies, and a turbulent geopolitical landscape, central banks are now increasingly focused on stress-testing their resilience to dollar volatility, once an unthinkable risk, now a quietly looming reality.
In essence, this move underscores a broader shift: global reliance on the U.S. dollar, once seen as a pillar of stability, is now being reassessed. And for financial institutions across the world, preparedness is no longer optional, it’s a necessity.