Dollar Dirham Swaps to Stabilize Gulf Currencies as RBI Works Hard to
Save The Falling Rupee
The Treasury secretary said that
currency swap line would benefit both the United Arab Emirates and the United
States.
1.
Proposal for financial support
U.S. Treasury Secretary Scott Bessent backed offering a currency swap to
the United Arab Emirates.
2.
Purpose of currency swap
The mechanism would provide the UAE with U.S. dollars in exchange for
dirhams, ensuring liquidity for global transactions.
3.
War-driven economic stress
The Iran conflict has disrupted oil and gas flows via the Strait of Hormuz,
affecting Gulf economies.
4.
Preventing market instability
Swap lines aim to avoid panic selling of U.S. assets and maintain
stability in global dollar funding markets.
5.
Mutual benefit argument
Bessent stated the move would help both the UAE and the U.S. by
stabilizing exchange markets and protecting American financial interests.
6.
Possible execution channels
Support could come via:
o
The Federal Reserve
o
The Treasury’s Exchange Stabilization Fund (ESF)
7.
Global demand for dollar liquidity
Other countries in the Persian Gulf and Asia have also reportedly sought
similar arrangements.
8.
Political criticism in the U.S.
Senator Chris Van Hollen questioned the move, citing:
o
Costs of the Iran war
o
Potential conflicts of interest linked to Donald
Trump
9.
Precedent for such support
The U.S. previously extended a $20 billion swap line to Argentina to
stabilize its economy.
10.
UAE’s relatively stable position
Despite disruptions:
11.
Uncertainty over necessity and scale
It remains unclear whether the UAE truly needs support or how large any
swap line would be.
Treasury
Secretary Scott Bessent said on Wednesday (22.04.2026) that he backed the idea
of providing economic support in the form of a currency swap to the United Arab
Emirates, an oil-rich ally that has been contending with economic fallout from
the war in Iran.
Speaking
at a Senate hearing, Mr. Bessent said that the Emirates, along with several
other countries in the Persian Gulf and Asia, had inquired about the
possibility of a swap. He said such a maneuver would
prevent the disorderly sale of U.S. assets as nations look to secure access to
dollars. The war in Iran has damaged oil and gas infrastructure throughout the
Middle East, dealing a blow to economies such as the Emirates that rely on the
Strait of Hormuz to transport crude around the world.
The
Treasury secretary said that providing a currency swap to the Emirates could
benefit the United States by stabilizing foreign exchange markets and
protecting American assets around the world. He added that it could be provided
by the Federal Reserve or by the Treasury Department, which can deploy its
Exchange Stabilization Fund to buy another nation’s currency.
“Swap
lines, whether it’s from the Federal Reserve or the Treasury, are to maintain
order in the dollar funding markets and to prevent the sale of the U.S. assets
in a disorderly way,” Mr. Bessent said. “The swap line would both benefit the
U.A.E. and the U.S.”
A
currency swap would entail the United States purchasing the Emirates’s
currency, the dirham, so that it has more dollars for handling its oil sales
transactions.
Senator
Chris Van Hollen, a Maryland Democrat, questioned the idea of providing
economic support for the Emirates and pointed out that President Trump and his
family have personal financial ties to the nation. The Trump administration has
been facing criticism over the cost of the conflict in Iran, which many view as
unnecessary.
“The
war in Iran has already cost us dearly,” Mr. Van Hollen said. “In my view, it’s
been a huge mistake, made us less safe and a lot worse off.”
Mr.
Bessent did not specify which other countries had asked for financial support.
The
Treasury Department deployed a $20 billion currency swap through its Exchange
Stabilization Fund last year to provide support for Argentina’s struggling
economy as it tried to bolster the political prospects of Argentina’s
president, Javier Milei. Mr. Bessent has broad discretion over the use of the
fund, which had a net balance of about $44 billion as of February. It is not
clear how big a lifeline the Emirates might need — or even whether it needs one
at all.
The
Emirati currency is pegged to the dollar, and the country’s central bank still
has ample reserves, despite the disruption to oil exports that the war has
caused.