Bessent defends U.S. dollar swap lines as Iran war harms global finances

Treasury Secretary Scott Bessent on Friday defended the possibility of the United States participating in currency swaps with allies in the Persian Gulf and Asia seeking financial support over the Iran war.

Bessent said in an

“They are a testament to the superiority of the U.S. dollar and the strength of America’s economic shield,” he said of the potential swaps.

The alleged benefits and commonality of swap lines come as the Trump administration is considering offering a financial lifeline to the United Arab Emirates, CNBC reported Tuesday.

It also came two days after Bessent said “many” allies in the Persian Gulf were seeking the same foothold as the ongoing war damaged the economies of oil-rich countries.

Swap lines involve the central banks of two countries agreeing to exchange equivalent amounts of each other’s currency and buy back those amounts at a specific date in the future. It maintains “US dollar liquidity swap line arrangements” with the central banks of the United States, Canada, the United Kingdom, Japan and Switzerland, as well as the European Central Bank, to “increase the supply of US dollar liquidity.” Federal Reserve.

The tool dates back to the 1960s and was used in the 1980s to stabilize the Mexican economy following the 9/11 terrorist attacks, during the 2008 financial crisis and at the beginning of the Covid-19 pandemic. Report from the Yale School of Management.

The aim of the maneuver is to relieve pressure on global financial markets and provide breathing space for households and businesses of both participating countries.

The Treasury may provide its own version of swaps using the Exchange Stabilization Fund, but traditional swaps are mostly offered by the Federal Reserve.

The regulations could pose a political risk for President Donald Trump, whose approval ratings for the economy have fallen as war-induced supply shocks have skyrocketed the prices of gasoline and other products, worsening Americans’ existing inflation woes. The CNBC All-America Survey, released Thursday, found that 60 percent of respondents disapprove of how Trump is handling the economy.

A potential swap line risks being seen as an unnecessary bailout of a foreign country; especially if this is a rich country like the UAE, which has the highest per capita income in the world.

Asked about a possible UAE swap line on CNBC’s “Squawk Box” on Tuesday, Trump appeared to say he was in favor of it.

“If they had a problem … I would be there for them,” Trump said.

In Friday’s X post, Bessent made a full-throated case for additional swap lines.

“These could benefit our nation by strengthening dollar use and liquidity internationally, maintaining the proper functioning of dollar funding markets, promoting trade and investment with the United States, and preventing disorderly sales of U.S. assets and disruptions to U.S. markets, businesses, and households in hypothetical stress scenarios,” he argued.

“Many of these countries have pristine sovereign balance sheets and large dollar assets, larger than many major economies for which we maintain permanent exchange facilities,” he wrote. Bessent did not name any countries in the post, and he and Trump had only mentioned the UAE earlier this week.

“I appreciate our allies’ foresight and careful risk management by exploring additional fiscal buffers during market downturns. Expanding permanent swap lines could be an important first step in creating new US dollar financing centers in the Gulf and Asia.”

“The dollar’s dominance and reserve currency status are being reinforced by sustained long-term initiatives, including countering the growth of problematic, alternative payment systems,” he added. “Under @POTUS, this is American Economic Leadership at work.”

— CNBC’s Eamon Javers contributed to this report.