US Allies in Gulf, Asia Request Swap Lines with US Central Bank: Official

US Treasury Secretary Scott Bessent Seeks to Establish Foreign Exchange Swap Lines with Gulf Allies and Asian Nations

US Treasury Secretary Scott Bessent revealed on Wednesday that several Persian Gulf allies and a number of Asian nations have requested foreign exchange swap lines with the US. These arrangements are expected to support dollar-denominated lending overseas, according to Bessent.

The Treasury Secretary made the announcement while answering questions at a Senate Appropriations subcommittee, a day after President Donald Trump confirmed that a currency swap with the United Arab Emirates (UAE) was under consideration. Bessent pointed out that numerous other countries, including some of the US's Asian allies, have also requested swap lines.

Swap lines have traditionally been set up between central banks, and the Federal Reserve maintains open lines with the European Central Bank, Bank of Japan, and a handful of other peers. Bessent previously pioneered using a Treasury fund to provide a swap line of dollars to Argentina to help Buenos Aires prop up its currency.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Swap lines are designed to maintain order in the dollar funding markets and to prevent the sale of US assets in a disorderly way. This is in line with Bessent's priorities as Treasury chief, which include "locking in dollar supremacy" and creating a big dollar funding market in the Middle East.

Bessent did not specify which nations had asked for new arrangements with the US, but he has been envisioning a potential build-out of swap lines as a means of supporting the dollar's global dominance. In a July interview with Bloomberg, he spoke to how "locking in dollar supremacy" was one of his priorities as Treasury chief.

The UAE, Saudi Arabia, and a number of other nations peg their exchange rates to the dollar, making them tightly connected to the US monetary system. Bessent has stated that the US wants to keep them on the peg and that they have a lot of excess dollars.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

The Treasury Department's capacity to grant swap lines is limited relative to the Fed. While currency swaps did not come up in Tuesday's Senate confirmation hearing for Kevin Warsh, Trump's pick to become the next US central bank chief, the nominee did make generic comments about supporting Bessent's broader economic statecraft agenda.

The Fed will play a supporting role in ensuring that the financial system is as safe as it can be and work with the Treasury Department, as it is outside of the conduct of monetary policy.

Indonesia has been struggling with a tumbling local currency, which has made it costlier to service offshore borrowing. The central bank has ramped up intervention in response, sending foreign-exchange reserves to a two-year low, while also lifting yields on rupiah securities to attract foreign funds and stabilize the currency.

Bank Indonesia Governor Perry Warjiyo outlined a challenging external environment on Wednesday, citing a flight to safety that is sending capital to havens, with higher US Treasury yields pressuring emerging-market currencies like the rupiah.