At their annual gathering in the hills of Portugal's Sintra, central bankers this week confronted rising challenges to their control of the global money system, from political attacks on the U.S. Federal Reserve to the rise of stablecoins.
Recent editions of the European Central Bank's getaway event have been dominated by worries about high inflation - no surprise after central banks whose core task is price stability were mostly late to react to a surge in prices in 2021-22.
But this year's discussions - from choreographed panel debates among central bank chiefs to late-night exchanges at the hotel bar - were centred on more existential threats to the monetary system as we know it.
U.S. President Donald Trump's frequent, often personal, attacks on Federal Reserve chair Jerome Powell - and hints about his replacement - were the most obvious example.
Any suggestion that the Fed might bow to pressure from the White House to lower borrowing costs would hurt its reputation for independence - for decades a core tenet of central banking seen crucial for keeping policy credible and investors on-side.
Two in three reserve managers at central banks polled by UBS Asset Management said in a survey released this week they feared that Federal Reserve independence was at risk.
He drew applause from an audience of economists and central bankers, with ECB President Christine Lagarde saying she and her peers would do the same if they were in Powell's shoes.
CONFIDENCE DENTED
But confidence has already been shaken.
Central bankers were openly fretting about a topic that was taboo only a few months ago: will the Fed, even under a Trump-picked chair next year, continue to lend dollars to foreign banks when they are in trouble?
Commercial lenders outside the United States have been able to borrow dollars even when they are shut out of financial markets via swap lines between the Fed and some other central banks created during the 2008 global financial crisis.
These facilities underpin the $25-trillion market for dollar credit outside the United States and also serve a domestic purpose: by helping to douse financial fires abroad, they effectively prevent them from spreading to Wall Street.
Governor Rhee Chang-yong said his Bank of Korea, which unlike the ECB and other major central banks does not have a standing arrangement with the Fed and relies on temporary help when needed, might have to fend for itself in the future.
"If there's no global dollars shortage, our understanding is that the Fed cannot extend the swap-line in that case and we have to self-defense ourselves," Rhee said at the conference.
His Japanese peer Kazuo Ueda emphasised the importance of regional swap lines, such as the Chiang Mai Initiative of the Association of Southeast Asian Nations (ASEAN), as an additional safety net.
These fears fed a broader debate about the dollar losing its status as the world's currency of choice for saving and trading, with a lack of viable alternatives in sight.
Seeking to reassure colleagues, Powell said the Fed retained its legal authorities and was "still prepared to use" them.
STABLECOINS
Stablecoins - crypto tokens pegged to an official currency - were a new entry among Sintra's topics of debate, even keeping some central bankers up late in informal discussions at the conference venue's bar.
While some recognised stablecoins' efficiency as a means of exchange, their proliferation in recent years - and especially since Trump threw his weight behind them as a way to extend the dollar's global reach - was seen as alarming by many central bankers.
They fear stablecoins may be prone to "runs" if investors suspect the issuing company does not have enough currency to back outstanding tokens, as happened to TerraUSD in 2022.
Bank of England Governor Andrew Bailey said stablecoins must show they can "hold their nominal value" if they are to be treated as a legitimate means of exchange.
The ECB's Lagarde went as far as saying stablecoins amount to "a privatisation of money", taking the supply of currency away from central bankers and undermining their capacity to conduct monetary policy.
Rhee was even more specific, saying stablecoins denominated in South Korean won - one of President Lee Jae Myung's election pledges - could undermine the domestic currency by making it easier to switch to dollars.
