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The US is contemplating offering foreign money swap traces to the United Arab Emirates and different allies within the Gulf and Asia whose economies have been hit by the fallout of Donald Trump’s battle with Iran.
US Treasury secretary Scott Bessent mentioned the UAE and “quite a few” different international locations had requested assist from Washington because the battle sends shockwaves by economies within the Center East and past.
“Swap traces, whether or not it’s from the Federal Reserve or the Treasury, are to take care of order within the dollar-funding markets and to stop the sale of the US property in a disorderly manner,” Bessent mentioned on Wednesday of the monetary instruments, that are used to make sure entry to {dollars} and assist preserve monetary stability.
The Iran battle sparked a multiweek surge within the worth of the US foreign money, forcing some international locations with greenback pegs to intervene in international change markets.
Overseas central banks in economies with greenback pegs usually intervene by promoting their holdings of US Treasuries.
Bessent’s feedback, made throughout a listening to earlier than the Senate appropriations committee, come a day after Trump confirmed experiences {that a} swap line with the UAE was into account. Bessent mentioned on Wednesday that any such association “would each profit the UAE and the US”. He didn’t specify which different international locations had made requests.
The UAE was annoyed when it was leaked that it had mentioned a swap with the Treasury and at inferences this hinted at a liquidity squeeze within the Gulf state.
Yousef al-Otaiba, the UAE’s ambassador to Washington, mentioned “any suggestion that the UAE requires exterior monetary backing misreads the info”.
“The UAE is likely one of the world’s most financially resilient economies, underpinned by greater than $2tn in sovereign funding property,” he mentioned in a put up on X. “Greater than $300bn in international foreign money reserves held by the UAE’s central financial institution; and a banking sector with roughly $1.5tn in deposits.”
An individual acquainted with the UAE’s pondering described the swap line as a “contingency measure”.
“It’s about constructing confidence and signalling we’re one of the trusted economies on this planet, like Japan and Europe, and the US is placing the UAE in that class,” the particular person mentioned.
An individual acquainted with Riyadh’s pondering mentioned, “Saudi Arabia didn’t request a swap line, given the comfy exterior buffers.”
The Trump administration has proved keen to make use of foreign money swaps to prop up allied economies. In October, the Treasury authorized a $20bn swap line for Argentina’s cash-strapped central financial institution by its Alternate Stabilization Fund.
The Gulf states, which preserve foreign money pegs with the greenback, have borne the brunt of Iran’s retaliatory strikes after the US and Israel launched their battle on the Islamic republic. Iranian missiles and drones have hit power infrastructure throughout the Gulf and severely disrupted air journey and tourism to the area.
Crucially, Iran has additionally slowed site visitors by the Strait of Hormuz to a trickle, strangling the flexibility of the Gulf states to export oil, gasoline, petrochemicals and feedstock for fertilisers.
The wealthiest Gulf states — Qatar, the UAE, Kuwait and Saudi Arabia — all have massive reserves and handle a few of the world’s largest sovereign wealth funds. The Gulf states mixed handle greater than $5tn in sovereign wealth funds.
However the longer the strait is closed, the extra strain their funds will come underneath as they lose export revenues.
The IMF forecasts that the economies of Bahrain, Kuwait and Qatar will contract this yr — the latter by as much as 8.6 per cent — whereas development in Saudi Arabia and the UAE will gradual however stay at about 3 per cent.
The Fed has swap traces with a choose group of world central banks within the Eurozone, the UK, Canada, Switzerland and Japan. These swap traces, which in concept are limitless in scale, have been designed to deal with strains in short-term dollar-funding markets.
The Fed’s swap traces are usually not designed to deal with international change actions, equivalent to these which have arisen throughout the Iran battle.
The Fed declined to touch upon Bessent’s remarks.
Extra reporting by Claire Jones in Washington
