Global Central Banks Rethink Reliance on US Dollar Swap Lines

Global Central Banks Rethink Reliance on US Dollar Swap Lines

In Summary

  • Middle East tensions drive fears over US dollar swap access
  • European central banks question long-term Fed reliability
  • US may increasingly tie access to geopolitical alignment
  • Central banks weigh alternatives amid rising uncertainty


Catenaa, Monday, June 16, 2025-  Central banks are increasingly reassessing their dependence on US dollar swap lines, as rising geopolitical tensions, particularly in the Middle East, stoke fears over the long-term reliability of this critical financial lifeline.1

The Federal Reserve’s swap line program allows foreign central banks to temporarily exchange local currencies for US dollars, ensuring access to liquidity during financial stress. While historically used during crises like the 2008 meltdown, concerns now center on whether these lines will remain immune from foreign policy disputes.2

Recent escalations in the Middle East, along with a growing divide between Washington and several key allies over defense, trade, and technology, have sparked anxiety in financial circles. European central banks, according to Reuters, are quietly evaluating how to navigate future shocks without assuming guaranteed access to the Fed’s dollar liquidity.

A think tank report commissioned by the European Parliament warned that these tools could become “geopolitically conditioned,” especially in an era where the US increasingly leverages financial channels as instruments of statecraft.

Federal Reserve Chair Jerome Powell has reaffirmed the central bank’s commitment to standing swap arrangements, but the long-term consensus is shifting. Observers note that future US leadership may reassess the scope or availability of these lines in light of shifting global priorities.

With the dollar remaining dominant in global transactions, any disruption to the swap line framework could ripple through international credit markets, prompting central banks to strengthen domestic liquidity defenses and diversify currency strategies.

See also 3

Sources
  1. ft.com: https://www.ft.com/content/4ae6fb0c-c4dd-4827-b85c-946fe615b43b[↩]
  2. moneycontrol.com: https://www.moneycontrol.com/news/opinion/central-banks-are-beginning-to-fret-about-dollar-swap-lines-13116901.html[↩]
  3. cepr.org: https://cepr.org/voxeu/columns/avoiding-kindlebergers-trap-dollar-coalition-willing[↩]
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