US Treasury Actions Spark Unease Among European Central Bankers Over Co-ordination

European central bankers left their annual gathering at Jackson Hole concerned that international financial co-operation is becoming less dependable. The issue stems from a series of unusual interventions by the US Treasury, which has sparked unease about consultation and policy predictability.

The source of irritation was Washington's intervention to support the Japanese yen on August 1st. According to officials, the US Treasury sold euros to fund purchases of the Japanese currency without giving the European Central Bank advance notice, a practice normally expected when an operation involves another major authority's currency.

The dispute is not about ownership of the euros but rather whether prior communication should be routine when an official transaction is intended to move one major currency by selling another. The Treasury has authority over its own foreign-exchange reserves and did not require ECB permission, making it a matter of convention rather than law.

European officials are also concerned about the US Treasury's plan to increase buybacks of longer-dated US government debt. They worry that these operations may be interpreted as an attempt to push down long-term borrowing costs, which would blur the lines between fiscal and monetary policy decisions.