The US Treasury Secretary Scott Bessent’s 22 April statement to the Senate Appropriations Subcommittee on Financial Services and General Government suggests a significant shift in US policy towards Bank Swap Arrangements (BSAs), the international role of the Fed, and indeed the extent of the central bank’s independence.[i] Comments that must be understood in the context of Bessent’s repeated criticism of the Fed (and those of Trump noted below) as not acting sufficiently in American interests,[ii] against perceived threats to the continued US domination of global finance, not least by China, and the increased role of BSAs in liquidity crisis funding. The latter development has shifted significant power away from the IMF and into the hands of a small number of central banks, most significantly the Fed and increasingly the PoBC.
While Bessent in his statement was at pains to point out that that BSAs were tools for global financial stability, used by the Fed to ‘maintain order in the dollar funding markets’ and prevent the ’disorderly sale of U.S. assets’ (Rappeport 2026), he also regards them as a geopolitical tool to strengthen ‘dollar dominance’ and ‘counter problematic alternative payment systems’ (Wessel 2025). To this end, he stated that he has offered BSAs to allies in the Persian Gulf, such a the UEA, and in Asia, that are suffering economic fallout from the Iran war, in order to create new ‘U.S. dollar funding centers’ and ‘financial backstops’ (Flatley 2026). He also refereed to the ‘numerous other countries’ that have requested BSAs to manage energy shocks and financial volatility, noting that many of these have ‘pristine sovereign balance sheets’ and ‘massive dollar holdings,’ in some cases larger than countries that currently have permanent swap facilities – see below – (Financial Times 2026; Rappeport 2026). Implying that the Fed should establish such BSAs with these (unspecified) countries, while highlighting the ability of the Treasury’s Exchange Stabilization Fund (ESF) to provide swap lines outside of the oversight of the Fed’s Federal Open Market Committee (FOMC – Wessel 2025). This ESF provision goes back to the 1934 Gold Reserve Act, is self-funding[iii] and gives the Treasury Secretary vast discretion to deploy funds with only the President’s approval (Dezenski 2026).[iv]
Meanwhile, the next Chair of the Fed, Kevin Warsh, confirmed on 14 May, has in his written response to Senate Democrats’ questions about the Fed’s authority to establish swap lines stated that ‘Fed independence is at its peak in the operational conduct of [domestic] monetary policy’ but ‘Fed officials are not entitled to the same special deference in areas affecting international finance, among other matters. In those matters, the Fed will work with the Administration and with Congress’ (Committee on Banking 2026; Peterson 2026). This careful wording would seem to reflect both the Treasury Secretary’s and the President’s criticism of Fed policies. With Trump in 2025, calling (unsuccessfully) for interest rate cuts and threatening to remove the then Fed Chair, Jerome Powell, for not complying.
However, the executive branch, including the President and the Treasury, has no direct statutory authority to dictate or veto the Fed’s swap line decisions.[v] Only the Federal Open Market Committee (FOMC) or Congress has the legal power to change or create foreign exchange swap lines, but in practice, the Federal Reserve does consult closely with the executive branch on international monetary operations, including swap lines. That is, there is routine consultation and the Fed rarely, if ever, acts entirely in isolation on major international interventions.[vi].This must have been particularly the case from 2008 with the Fed’s rapid establishment of 14 BSAs – five of which were unlimited and permanent – with key central banks.[vii] These BSAs placed the FED very firmly at the center of efforts to stabilise the global economy during the Global Financial Crisis (GFC) and Covid 19 Pandemic. With the five permanent BSAs becoming key components of the international financial architecture.
Setting aside questions of how much one should read into statements made by members of the present US administration or their nominees, particularly in the light of the President’s far from consistent position on almost any issue, there are three major concerns over the Bessent and Warsh’s statements.
Firstly, the comment on countries without Fed BSAs that have clean balance sheets and large holdings of dollar assets suggest that BSAs should be some sort of reward for good / US approved behaviour. Which suggests ignorance of the purpose of BSAs, particularly the five permanent Arrangements and, more seriously, the international role of the Fed.
Secondly, the existence and functioning of Foreign and International Monetary Authorities FIMA Repro Facility. This was established by the Fed in March 2020 as a temporary measure in addition to the BSAs and made permanent on 28 July 2021, as the Fed’s major Covid 19 related BSAs were expiring. FIMA allows countries and international entities that maintain accounts with the Federal Reserve of New York (FRNY)[viii] and who have applied to, and been approve by, the Federal Reserve Foreign Currency Committee, to obtain dollar liquidity using their holdings of US Treasury Bills as collateral.[ix] The point is that US allies with large dollar asset holdings are already covered / rewarded by the existing system and incentivised to hold US dollar assets.
Thirdly, and most serious, is the implication of Bessent’s statement that the BSAs should be focused on protecting US interests, payments systems, currency and allies. That is, locking countries into the dollar system and shifting the Fed’s international operation very firmly and openly into the geopolitical sphere. While countries, particularly in the Global South have many grievances over US international and domestic monetary activity, there is general recognition that the Fed as the de facto World Bank, plays a major role in international financial stability, and was of critical importance during the GFC and Covid 19 Pandemic. The concern is that the Bessent and Warsh views of and vision for the Fed, could seriously inhibit its ability to manage another major systemic crisis, with respect to the necessary rapid response, adequate and targeted action, and ability to generating the necessary cooperation and level of trust. Commodities that are in much shorted supply amongst the international community than they were in 2007-8 and 2020-21.
Endnotes
[i] There is yet no full transcript available, though the keys points and quotes below have been widely reported.
[ii] See for example: Saphir and Lawder (2025) and New York Times (2026).
[iii] The ESF was established with a US$2bn, allocation from Congress as a self-funding body that generates income from: holding Treasury and foreign exchange reserves; trading foreign exchange; and the ability to monetise SDRs, of which it is the official recipient. In 2025 the ESF assets were reported as US$218bn, of which US4173bn. were SDRs (Zenders and Nodari 2026).
[iv] The ESF was used in October 2025 to provide Argentina with US$20bn. Prior to that it was used domestically during the Covid19 Pandemic, but it had last been used internationally in 2002. See Zenders and Nodari (2026).
[v] The Fed exercises this power under Section 14 of the Federal Reserve Act which allows it to engage in open market foreign currency operations (Federal Reserve Act, https://www.federalreserve.gov/aboutthefed/section14.htm).
[vi] See for example Federal Reserve (2025), Heffner (2023), McGeever (2025) and Perry (2026).
[vii] The five permanent BSAs, often referred to as the C6 Standing Line (including the Fed), comprise: Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank. These were supplemented by nine limited and temporary BSAs with: Reserve Bank of Australia, Banco Central do Brasil, Danmarks Nationalbank, Bank of Korea, Banco de México, Reserve Bank of New Zealand, Norges Bank, Monetary Authority of Singapore, and Sveriges Riksbank.
[viii] As some 200 countries and international entities do.
[ix] There is no public list of countries that have been approved – see discussion in Kelly (2023).
Sources
Board of Governors of the Federal Reserve (2022) ‘Policy Tools: Foreign and International Monetary Authorities (FIMA) Repo Facility’, March 24, https://www.federalreserve.gov/monetarypolicy/fima-repo-facility.htm
Dezenski, E. (2026) ‘This Economic Weapon Is Worth Congress’s Attention’, Wall Street Journal Opinion, 14 May, https://www.wsj.com/opinion/this-economic-weapon-is-worth-congresss-attention-c7f5244a
Federal Reserve (2023) ‘Credit and Liquidity Programs and the Balance Sheet, 15 March, https://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm
Federal Reserve of New York (Nd), ‘Central Bank Swap Arrangements’, https://www.newyorkfed.org/markets/international-market-operations/central-bank-swap-arrangements
Flatley, D. (2026) ‘Bessent casts potential new swap lines as boost to dollar’s role’, Bloomberg, 24 April, https://www.bloomberg.com/news/articles/2026-04-24/bessent-casts-potential-new-swap-lines-as-boost-to-dollar-s-role
Financial Times (2026), ‘The limits on Scott Bessent’s Treasury swap lines’, 24 April
Heffner, B. (2023) ‘United States: Central Bank Swaps to 14 Countries, 2020’, Journal of Financial Crisis, vol. 5 (1), https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1499&context=journal-of-financial-crises
Kelly, S. (2023) ‘United States: FIMA Repo Facility’, Journal of Financial Crisis,5 (1): 8-79, https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1501&context=journal-of-financial-crises
McGeever, J. (2025) ‘Fed independence spotlight shines on dollar swap lines’, Reuters, 24 September, https://www.reuters.com/markets/us/fed-independence-spotlight-shines-dollar-swap-lines-2025-09-24/
New York Times (2026) ‘Bessent says Fed lacks accountability and has lost public trust’, 2 April, https://www.nytimes.com/2026/02/04/us/politics/bessent-hearing-federal-reserve-powell.html
Peterson, M. (2026) ‘Warsh hints at a new reading of the Fed’s power over swap lines amid UAE discussion”, CNBC Discussion, 29 April, https://www.cnbc.com/2026/04/29/fed
Perry, A. R. (2026) ‘The Federal Reserve’s questionable legal basis for foreign central bank liquidity swap’, Columbia Law Review, vol. 120 (3), https://www.columbialawreview.org/content/the-federal-reserves-questionable-legal-basis-for-foreign-central-bank-liquidity-swaps/
Rappeport, A. (2026) ‘Bessent backs financial support of oil rich UEA’, New York Times , 22 April, https://www.nytimes.com/2026/04/22/us/politics/bessent-support-emirates.html
Saphir, A. and Lawder, D. (2025) ‘US Treasury Secretary Bessent calls for big changes at Fed’, Reuters, 6 September, https://www.reuters.com/world/us/us-treasury-secretary-bessent-calls-big-changes-fed-2025-09-05/
Wessel, D. (2025) ‘What is the Exchange Stabilization Fund? How was it used during COVID? How may it be used for Argentina?’, Brookings, 6 October, https://www.brookings.edu/articles/what-is-the-exchange-stabilization-fund-and-how-is-it-being-used-in-the-coronavirus-covid-19-crisis/
Zenders J. F. and Nodari, G. (2026) ‘The Exchange Stabilization Fund: From Dollar Bloc to Swap Diplomacy’, e-axes, International Economics., 28 April, https://e-axes.com/the-exchange-stabilization-fund-from-dollar-bloc-to-swap-diplomacy