EU banks: 1. Lend and trade in USD; 2. Have a shitload of deposits (liabilities) in USD-denominated accounts [1] [2] (1 trillion?)
A huge amount of EU imports (from outside Europe) have to be paid in USD. Like oil/natgas/commodities and manufactured stuff.
The Euro is not really used as reserve currency outside of EU.
So if EU goes into economic war with USA by dumping US treasuries: 1. they would be trading those treasuries for something else (EUR denominated bonds? yuan? something else?); 2. no more swap lines and goodbye exports to USA so USD debt trap with depositors (forced conversion to EUR?); 3. How are they going to pay imports without USD lines?
The only other big player who can give them equivalent liquidity in swap lines is China. But as I stated, that would be even worse than USD dependency and less likely.
All this while the EU industrial base is on the brink and with a huge dependency on American natgas and Chinese supply chain. They cornered themselves and they can't do much without huge sacrifices. The only way out needs a complete shakeup of the leadership in Brussels and a new economic plan. I wouldn't bet on that happening.
In Yuan? Which is certainly a more of a global reserve currency than the Euro and is certainly widely used for international trade? The same Yuan with the massive amount of liquidity outside of China?
The Canadian Dollar and Pound Sterling each are a have a significantly bigger share as reserve currencies than the Yuan....
USD/CNY havs only slightly higher volume than USD/CHF. Hardly anyone uses it anywhere outside China.
RMB settled ~60% of PRC cross border payments last year (up from 30% a few years ago), ~6T USD equivalent in settlement, which already makes rmb more real/useful currency than euro/yen reserves. And functionally shadow reserve - RMB can buy Chinese inputs, intermediate goods and global commodities, i.e. even oil delinked from USD, which covers like everything a country typically needs. That's what reserve is ultimately for, to buy shit/liquidity, not mere storage. RMB already guarantees access to most global goods for the simple reason PRC is producer of said goods. PRC also has massive USD war chest reserves, they already do USD lending AND USD swaplines to global south. In terms of liquidity/scale of swapline to EU, peak US swapline to EU was like 600B during covid and 2008 financial crisis, i.e. 20% of PRC USD reserves, which PRC increasingly need to find uses for as she displaces more USD from trade settlement. So it's doable for PRC, but question of trust, but not whether EU trust PRC, but whether PRC trust EU since these swap lines tend to be commodity-backed, where frankly EU has limited offerings to PRC.
TO solve
> need the swap lines by the Fed to stay afloat
?
This is about as nonsensical as it gets.