The United States used euros from its foreign exchange reserves to purchase Japanese yen, and only notified the European Central Bank after the entire transaction was completed. This disclosure, revealed on August 7, adds a European perspective to the U.S. intervention in the yen exchange rate, which was first reported by the Financial Times on August 1. The U.S. government coordinated with Japanese authorities to support the yen, but instead of selling U.S. dollars to complete the purchase, it chose to sell euros. Both the European Central Bank and the Federal Reserve Bank of New York declined to comment on the notification process. A U.S. Treasury spokesperson told the Financial Times that the Treasury does not coordinate with foreign institutions on decisions to deploy assets from the Exchange Stabilization Fund.
The core of the disagreement is not the control of euro reserves, but the mechanism for prior consultation. Euros are part of the U.S. official foreign exchange reserves, and the U.S. has the authority to buy and sell these assets. However, the European Central Bank in Frankfurt has raised questions about whether the U.S. should have communicated in advance when using euros to intervene in the exchange rate of another major currency. The reason the U.S. chose to use euros for intervention is that foreign exchange intervention is an operation where monetary authorities buy or sell currencies to influence exchange rates. The Federal Reserve Bank of New York executes foreign exchange transactions for the Federal Reserve and also acts as a fiscal agent, carrying out operations under the directives of the U.S. Treasury. The U.S. could have sold U.S. dollars to buy yen, but using euros instead allowed it to support the yen without directly injecting more U.S. dollars into the market. The U.S. Treasury's Exchange Stabilization Fund already holds both euros and yen. The Treasury stated that its foreign currency deposits and securities are currently allocated only in euros and yen, held in accounts at foreign central banks and invested in foreign government bonds. Therefore, this operation used reserves the U.S. already held, not euros specifically purchased for this intervention.
Japan's exchange rate policy is now deeply intertwined with broader U.S. financial interests. EU Today previously reported that Japan holds a massive amount of U.S. Treasury bonds, and utilizing these bonds carries high political sensitivity. The key lies in communication and consultation, not seeking permission. Foreign governments do not need European Central Bank approval to dispose of the euros in their own reserves. The euro is an international reserve currency, and the euro assets held by various countries are owned by the governments and central banks of those holding countries. However, when interventions affect multiple major currencies, central banks often coordinate. For example, after the 2011 earthquake and tsunami in Japan caused volatile yen fluctuations, the central banks of the U.S., UK, Canada, and the European Central Bank joined forces with Japan to conduct a joint intervention. The European Central Bank itself views foreign exchange intervention as a policy tool, which can be implemented within an established institutional framework, including cooperation with other monetary authorities.
According to the Financial Times, some European Central Bank officials believe that notifying Frankfurt after the transaction was completed violates a long-standing convention. The European Central Bank has not made an official public statement on the matter. This disagreement does not mean the European Central Bank has the power to veto the U.S. handling of its own euro assets. The point of contention is whether, when an intervention operation involves the currency of another major monetary authority, information sharing should have occurred before the transaction was executed. The operation did not put sustained downward pressure on the euro. Selling euros can put downward pressure on the euro during the transaction phase, but the long-term impact depends on the scale of the sale, overall market expectations, and private investor reactions. The purpose of this operation was to boost the yen, not to implement a policy aimed at suppressing the euro. There is currently no public evidence that this transaction caused a lasting impact on the eurozone's financial environment. The European Central Bank itself must deal with exchange rate fluctuations, trade frictions, and external shocks, all of which affect its assessment of inflation and economic growth. EU Today previously analyzed that the euro's trajectory and U.S. trade policy are already factored into the European Central Bank's monetary policy considerations. This intervention raises a new practical issue: even if the European Central Bank makes no policy adjustments, the reserve management actions of other countries can still affect the euro.
Further details await U.S. disclosure. The Federal Reserve Bank of New York will publish quarterly reports on the Treasury and Federal Reserve's foreign exchange operations, covering intervention actions and the management of U.S. foreign exchange reserves. Subsequent reports are expected to reveal more details about this transaction, including how the operation was recorded in reserve accounts. However, the reports may not answer the key diplomatic question: precisely when the European Central Bank was notified. Based on available information, the U.S. used its own controlled euro reserves to participate in an intervention to support the yen, and the European Central Bank was informed after the transaction was completed. The core of the current conflict does not lie in control of the euro, nor does it represent a broad currency confrontation. Instead, it is about a convention among major global monetary authorities: what communication rules should be followed when one party uses another's currency to intervene in a third currency.
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