Trump's former deputy governor of the Bank of England issues a caution about the possibility of Trump activating a financial 'shutdown button'
In a significant development, concerns about a potential 'kill switch' in US fighter jets and payments have surfaced, casting a shadow over US-ally relations. The discussion took place at an event hosted by Britain's National Institute of Economic and Social Research late on Tuesday.
Jon Cunliffe, a former top official at the Bank of England who served as the deputy governor for financial stability from 2014 to 2024, expressed his concern about a potential loss of global confidence in the US dollar and its potential impact on financial stability. Cunliffe reported hearing concerns from people in the payments network about using the US system due to the potential for diplomatic pressure.
The current US administration is being viewed as a potential disrupter of payment systems, using them to exert diplomatic pressure. Some Western countries are reportedly reluctant to buy US fighter jets due to fears of remote disablement. This apprehension is further compounded by the difficulty of avoiding US banks when making foreign payments.
BoE Governor Andrew Bailey also expressed concern about Trump's pressure on the Federal Reserve's independence. Adam Posen, a former BoE official, stated that a politicized Fed might not lend dollars to foreign central banks in a crisis.
In an effort to mitigate these risks, countries like the European Union are considering protecting their payment systems from potential shutdowns by the Trump administration. Measures include developing their own digital currencies such as the digital euro to reduce dependence on the US dollar payment infrastructure. The European Central Bank is actively working on establishing a secure and stable digital euro, aiming for possible introduction around 2026 or 2027.
Interestingly, during Trump's second state visit to Britain, Prime Minister Keir Starmer and Trump forged a cordial relationship. However, financial stability concerns continue to loom large, with Western countries heavily relying on US-headquartered Visa and Mastercard for their day-to-day domestic transactions. Notably, Visa and Mastercard suspended operations in Russia in March 2022 due to Russia's full-scale invasion of Ukraine.
There is a risk that US policymakers might not preserve dollar swap lines, potentially leading to financial turmoil spilling over into US markets. Cunliffe stated that the current US administration appears to be as likely to use all its levers against traditional allies as against its opponents, expressing concerns about the possibility of the US system being weaponized against jurisdictions traditionally considered as allies.
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