BY DAYO ADESULU
The European Union (EU) is set to also dump the United States dollar.
This decision to reduce reliance on the dollar is coming after American sanctions on Iran exposed the vulnerabilities of the bloc’s financial infrastructure.
The leadership of the EU are now determined to challenge the dollar’s supremacy and a renewed desire to boost the role of the euro currency in the comity of nations.
Recall that in 2020, China also declared to dump the U.S dollar for Bitcoin. China Dumps Dollar, Declares Bitcoin, Ethereum Legal Tenders
Bitcoin.com reports that in sentiments expressed in the draft European Commission (EC) policy paper, officials warn of the current over-reliance “on the US dollar to cushion financial tensions and stability risks.”
Prior to the latest revelations, the EU had “long sought to promote greater use of the euro as the bloc tries to bolster its financial and economic autonomy.”
Also, the Financial Times report explained that it took the negative effects of the dollar’s dominance under the Trump presidency to nudge EU leaders into action.
According to the report, when the U.S. government reimposed sanctions against Iran, the EU financial infrastructure was also at the receiving end of the U.S. dollar’s dominant power.
The report added that the EU leaders, who seemed too eager to salvage the nuclear agreement with Iran, were forced to “set up a special-purpose vehicle (SPV) to facilitate payments for legitimate trade between the EU and Iran.”
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”This SPV still encountered difficulties and this is what partly has prodded European leaders to act.” The EC paper says:
They agreed that the EU should develop measures to shield EU operators in the event a third country compels EU-based financial-market infrastructures to comply with its unilaterally adopted sanctions.
It was gathered that after the United States reintroduced sanctions on Iran, their impact on the European financial infrastructure was direct, as “Swift, the payment messaging system, the Euroclear and Clearstream securities depositories” were all affected.
Consequently, the EC policy paper says the steps that the bloc needs to take, “include using a planned review of EU regulation of financial benchmarks to encourage them to be denominated in euros.”
This is because many of such benchmarks are presently denominated in U.S. dollars.
Besides, the EU also want to find energy alternatives to crude oil, as the main benchmarks such as Brent and WTI are tied to the dollar.