Bacent: Many Gulf and Asian countries have requested "currency swaps" from the United States.

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U.S. Treasury Secretary Scott Bessent recently stated that several Gulf allies and Asian countries have submitted currency swap requests to the United States. This move will help support the dollar’s dominant position globally and provide liquidity support for overseas dollar-denominated financing markets.

On April 23, according to Bloomberg, Bessent explicitly stated while testifying before the Senate Appropriations Subcommittee on Wednesday (April 22) that, "many Gulf allies have submitted swap applications, and there are also several other countries, including some Asian allies, making the same request."

The previous day, Trump had publicly confirmed that the U.S. was considering establishing a currency swap arrangement with the UAE. Bessent emphasized that the core purpose of currency swaps is "to maintain order in the dollar financing market and prevent the disorderly sell-off of U.S. assets."

The U.S.–Iran war has resulted in disruptions to energy flows in the Gulf region, impacting the global economy and financial system. Some U.S. allies have suffered Iranian retaliation, and many Asian currencies have also come under pressure and weakened.

Analysts point out that against this backdrop, the surge in currency swap requests reflects allies' urgent need for dollar liquidity guarantees and also provides the U.S. with a new entry point to consolidate alliances through financial tools.

Treasury Leads: A New Tool for Dollar Diplomacy

Currency swaps are traditionally established between central banks.

The Federal Reserve currently maintains permanent swap lines with only a handful of major central banks, such as the European Central Bank and the Bank of Japan. However, Bessent is positioning the Treasury as the new principal for this tool.

Last year, Bessent took the lead in using Treasury funds to provide dollar support to Argentina, helping the pro-U.S. government there stabilize its currency before the election.

In July last year, he made it clear that "locking in dollar hegemony" is one of his core priorities as Treasury Secretary, saying, "One of my goals is to build a massive dollar financing market in the Middle East. The Treasury can provide swap lines just like the Fed—you will see us arrange such swaps with a batch of new countries with which the Federal Reserve has not yet established such relations."

However, the Treasury's capacity in terms of swap scale is relatively limited and falls far short of the Fed’s.

Although the topic of currency swaps did not come up in the Senate confirmation hearing for Walsh, Trump’s nominee for the next Fed Chair, Walsh gave a principled statement, saying the Fed would play a supporting role in ensuring the safety of the financial system and would work with the Treasury to advance related agendas. Walsh stated:

"This is beyond the scope of monetary policy; the Federal Reserve will play a supportive role."

It is worth noting that the Federal Reserve has historically taken a cautious stance on expanding swap arrangements. After the global financial crisis, South Korea promoted the establishment of a permanent central bank swap network, but then-Fed Chairman Bernanke explicitly opposed making swaps a "permanent service."

Behind the Swap Requests: The Impact of War and Currency Pressure

Energy supply interruptions triggered by the U.S.–Israel vs. Iran war are the direct catalyst for the surge in demand for currency swaps this time.

Blockage of key energy corridors in the Gulf is causing knock-on effects for the global economy. Some of America’s allies in the region have become direct targets of Iranian retaliation, while several Asian countries are experiencing capital outflows and increased risk aversion, causing their currencies to remain under sustained pressure.

The UAE, Saudi Arabia, and several wealthy Gulf states peg their currencies to the U.S. dollar, closely linking themselves to the U.S. monetary system, with their oil export revenues also mainly denominated in dollars.

This structural tie makes Gulf states a priority for the expansion of the dollar swap network. Through swap arrangements, the U.S. can not only provide liquidity support to allies during crises, but further strengthen the dollar’s position as a settlement and reserve currency in the region.

According to Bloomberg, the UAE has informally inquired about potential financial assistance arrangements, including currency swaps, in case the impact of the war worsens.

In Asia, multiple currencies are facing significant pressure. South Korea is deeply concerned about the excessive depreciation of the won and also needs to raise funds for the $350 billion investment agreement signed with the Trump administration. Bessent reiterated on social media last Sunday that he and the Korean finance minister both believe that excessive volatility in the won is undesirable.

Indonesia faces similar difficulties. As an active issuer of dollar-denominated debt, the Indonesian rupiah’s continued decline has caused a sharp increase in the cost of repaying overseas debts. Bank Indonesia has stepped up its intervention in the foreign exchange market, with reserves falling to a two-year low, while raising rupiah bond yields to attract foreign capital and stabilize the currency.

Bank Indonesia Governor Perry Warjiyo described the current tough external environment earlier Wednesday—safe-haven funds are pouring into secure assets, U.S. Treasury yields are rising, further suppressing emerging market currencies.

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