Is the European Central Bank losing faith in the Euro?

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“FRANKFURT, Germany (AP) — The European Central Bank announced plans Thursday to provide banks with dollars in three medium-term loan operations through the end of this year.

The ECB said it had decided to launch the three-month loans in coordination with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank”.

Banking stocks have been hurt recently on fears that they were having trouble getting short-term loans from each other.  These central bank loans would relieve that pressure.  The highly interesting issue is that the ECB will be issuing U.S. Dollar (USD) loans, not Euro loans.

The only logical interpretation for this is that the markets perceive the USD a far more reliable and safer option than the Euro.

Interestingly the Bank of England is in on this “deal” to extend credit, or short term bailout funds which appear targeted within the Euro-zone banking system.

Markets and the euro currency were already up before the announcement, but were further buoyed by the news.

Coming on top of mounting hopes that Greece will not be defaulting on its debts anytime soon, the news has helped ease concerns over the impact of Europe’s debt crisis on banking stocks.

The 17-nation currency surged on the news.

Central banks around the world have joined the coordinated effort to prevent Europe’s debt crisis from derailing the global economy’s rebound from recession.  The U.S. Federal Reserve in 2010 reopened a program to ship billions of U.S. dollars overseas in a bid to pump more short-term cash into the financial system and make sure banks have the dollars they need.

I’m not an accredited financial analyst, but when a central bank is resorting to using another nation’s currency to issue loans and cover markers it tends to be part of a process that has historically had rather ominous portents.