New Treasury Swap Lines to Protect Dollar Dominance in Middle East

追加: 2026-05-15

[00:00:00]The United States government is reportedly planning on using its swap lines in order to project financial power around the world and secure the dollar's dominant position as the global reserve currency. And the next country up on the list to potentially get a swap line is the United Arab Emirates. In fact, in April, President Trump disclosed that the US was considering offering the UAE financial support through a currency swap line. Now in order to understand what is going on here we have to understand what is a swap line. Very simply a swap line is typically not always but typically an arrangement between two central banks in order to swap their currencies. Hence the name swap line. Now a lot of this started under the old Breton Woods agreement where nations around the world pegged their currencies to the dollar which was redeemable for gold at the time. These swap lines were set up in order to prevent a run on the dollar. These were networks of temporary swap lines with foreign central banks. And typically, the Federal Reserve has only had swap lines established with some of the world's most developed nations. Now, in recent history, these swap lines have been used for bailouts, for lack of a better word. Back in 2022, Credit Swiss was in trouble. They were bailed out by the Swiss central bank and the Swiss central bank was pulling on its swap line with the Fed in order to get its hands on dollars that it needed in order to accomplish this bailout because the problem was a dollar shortage. And as you'll see in a moment, that's the main thing that's going on here is they're trying to get in front of an growing dollar shortage around the globe. But the reason why this is a little bit curious is because right now they're talking about it with the UAE. And the UAE is a wealthy oil producer. They have ample reserves. They have a large sovereign wealth fund. Now, some people are speculating that this is because in secret the UAE is actually in trouble. I don't think that's actually the case right here. It is more likely an issue that the UAE wants to join the club of central banks like the UK, Japan, and Europe that hold standing swap lines with the Fed. That status matters more than the dollars. That's according to chief emerging markets economist for Bloomberg. In fact, the foreign trade minister in UAE also said this is an elite matter. It is not about bailing out. Now, the fact that they're discussing opening up swap lines with other countries like the UAE is not the only new or odd strange thing about this. The other strange thing about this is that it may not necessarily happen through the Fed. This might be a swap line that is established with the Treasury Department instead. The Treasury Department has something called the Exchange Stabilization Fund, and it has set up swap lines in the past, like to help Mexico deal with the Mexican debt crisis in the '90s, or even recently when Bessant helped bail out Javier Malay's financial issues in Argentina in 2025. Most people think that the rest of the world is trying to get away from using dollars because of our rampant inflation and the US government's borrowing. That's not actually the most urgent issue. The reason why many countries are trying to ddollarize is simply because there is a growing global dollar shortage, which means it is more more expensive and more more difficult for many countries to get their hands on dollars. So, they're trying to preserve the dollars that they have for the things they absolutely need dollars for and use other currencies to get rid of for other things. And so by the Treasury going to some strategic countries and setting up swap lines with those countries so that those countries have easier access to be able to get the dollars they need really strengthens and reinforces the dollar's usage in global currency transactions. Now, I've talked about before if we do have some sort of a liquidity crunch, the most likely way that that is going to show up globally is with a dollar shortage crisis.

[00:03:49]There's somewhere between a hundred to $200 trillion worth of dollar denominated debt globally and we have no idea where it is or who holds it because we don't have one unified central bank over just dollar transactions and dollar debt around the world. But dollars are loaned into existence around the world just like they are in the United States.

[00:04:08]Here the Federal Reserve has jurisdiction over US banks and so has the ability to see any potential liquidity shortages before they come.

[00:04:16]That's why the Federal Reserve is doing QE right now in order to try and prevent liquidity crunches here. But we don't have that jurisdiction or the ability to do that around the world. And so, ironically, the more certain countries try and get away from using dollars, the less dollars there are available, which means it is more expensive and harder to get your hands on dollars, which means the likelihood that somebody defaults on dollar obligations goes up, which means the next person in line who receives that default now are is at risk of defaulting to the next person. And very quickly you could have a domino effect, a spiraling effect of a dollar shortage, a liquidity crunch turning into a deflationary death spiral because nobody can access the dollars they need. That debt becomes worthless and goes to zero and that default cascades throughout the global economy. Now luckily in the past when something like this has started like the bailout of credit Swiss it has happened in a place where the Federal Reserve has an established swap line and so they're able to get the dollar liquidity to the place where it needs to be before it turns into a global issue.

[00:05:14]But if those dollar shortages instead spring up somewhere where a swap line does not already exist, then you could have a really big problem start to spiral out of control really quick. So, it seems like these arrangements trying to get swap lines set up even though it's under the Treasury instead of the Fed with other countries might be just one step in order to prevent that from getting into becoming a big issue in the first place. Now, the big question is whether there's actually even enough money in the exchange stabilization fund to meet all of these requests because there's only about $220 billion in it right now. However, Scott Bessent, the Secretary of the Treasury, has signaled interest in making greater use of the Treasury Department's ability to deploy these swap lines. He has said that one of his goals is to create a big dollar funding market in the Middle East. He said, "I think you're going to see us doing swap lines with a whole cohort of new countries that the Fed doesn't have swap lines with." But again, there's the issue of do they actually have the money for it? Because the Treasury, unlike what most people think, does not actually print money into existence.

[00:06:15]That is something that the central bank does, the Fed, not the government.

[00:06:19]However, the Fed operates independently.

[00:06:20]They make their own decisions on swap lines. And this is where like the real rubber meets the road with this kind of thing that we're seeing come down the pipeline. Something that many people like Ray Dalio have been warning about for probably close to a decade now. I've been talking about it for years that we are in a time period where we are going to see much much tighter coordination between the Federal Reserve and the Treasury. Monetary policy and fiscal policy are becoming intertwined to becoming essentially the same thing.

[00:06:47]Even if you don't have outright dissolution of a federal reserve where the central bank is abolished and completely come under control of the treasury department, the tight coordination between the central bank and the central government means a de facto combining a de facto merger and that happens when there is agreement between the people who are in control of both of those entities. And right on time, we have a new chairman of the Federal Reserve coming into control, Kevin W, Trump's nominee. And he was asked about this in the recent interviews by Congress by Elizabeth Warren, and apparently appeared to suggest that the Federal Reserve would defer to Treasury officials judgment. He said Federal Reserve independence is at its peak in the operational conduct of monetary policy, but Federal Reserve 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. In other words, in Kevin Walsh's opinion, who is the incoming new chairman of the Federal Reserve. He's saying Federal Reserve independence is about setting monetary policy almost exclusively. In other matters, like which countries they establish swap lines with, that's something that should belong to the authority of Congress or the executive branch, in this case, the Treasury. Which means that if Bessant tells Worsh, hey, we should establish a swap line with the UAE, it's very good likelihood that Worsh might just say, okay, you've got it. Meaning that the amount of money in the ESF, the exchange stabilization fund, might not even matter at all. US government is facing a sovereign debt crisis right now. They have more debt than the world can buy, especially at current interest rates.

[00:08:26]They need to find many new ways to solidify dollar usage and cycle those dollars, recycle those dollars back into US Treasury loans. There are many pillars to this plan. My last video about this was on stable coins. I've talked about bank deregulation and this is certainly a big puzzle piece.

[00:08:45]Everything we see the administration doing from a financial side of things through the Treasury Department, the Fed nominations, it is all about dealing with this crisis. 39 trillion in debt and long-term interest rates at 5%. The cost of the interest on the national debt alone is very quickly increasing on its way towards $2 trillion a year. This is unsustainable and the government cannot afford it. It needs new ways to get new dollar usage around the world and new demand for those dollars, which ultimately means demand for treasuries.

[00:09:16]And the swap lines the government is trying to establish with other countries, especially in the Middle East, are a big part of their plan to deal with this problem. Now, unfortunately, none of this is going to be paired with austerity. All this is going to be done in an effort to help them successfully and effectively inflate away the debt. Try and manually with inflation nominally jack up those GDP numbers, pay for their debt and expenses with newly created money so that they can improve the ratio of their debt compared to GDP. They don't care about the absolute dollar amount, which means this is all very bullish for asset prices, especially if you know which areas of the market to look in. Markets are moving extremely quickly. I've already experienced a very good year so far and I am positioned to take advantage of all the things that are happening very soon this year, especially in things like commodities.

[00:10:04]If you would like to see my playbook, hear about my strategy. I'll share everything that I know with you. I'm running a workshop on Thursday to teach you everything I know. It is free. Spots are limited. Link is in the description below. As always, thank you so much for watching. Have a great day.