The United Arab Emirates wants a currency swap line with the United States. But some economists are telling the U.S. to hit the brakes.
On Monday, UAE Trade Minister Thani Al Zeyoudi revealed that the Middle Eastern nation has been in talks with the U.S. about the possibility of setting up a currency swap line. Speaking at a conference in Abu Dhabi, Al Zeyoudi noted that the U.S. "swap policy" is currently limited to just five countries, and the UAE is part of ongoing discussions with an elite set of partners.
The minister emphasized that the swap line reflects the significant level of trade and investment between the two countries, making such an arrangement necessary. But he offered no further details on the discussions or any timeline for a potential agreement.
This comes just days after the UAE officially exited OPEC and OPEC+ on May 1.
How Currency Swaps Work
Central bank currency swap lines allow institutions to exchange currencies directly, reducing foreign exchange costs and risk. The Federal Reserve maintains permanent swap lines with five major central banks: the Bank of Canada, the European Central Bank, the Swiss National Bank, the Bank of England, and the Bank of Japan.
Last month, Treasury Secretary Scott Bessent told a U.S. Senate Appropriations subcommittee that several U.S. allies in the Gulf and Asia have requested currency swap lines to manage economic stress from the Middle East conflict. He argued that such arrangements, potentially including the UAE, would help stabilize dollar funding markets, reduce financial turmoil, and prevent disorderly selling of U.S. assets.
In October, the U.S. provided Argentina with a $20 billion currency swap to stabilize the peso during a volatile election period, which helped strengthen President Javier Milei's party. Bessent defended that arrangement, calling it a "profitable swap line" aimed at "pursuing peace through economic strength," rather than a bailout.
Why Experts Say No to the UAE
But not everyone is on board with extending similar treatment to the UAE. In a piece published in the Financial Times on Friday, Brad Setser, a senior fellow at the Council on Foreign Relations, and Stephen Paduano of the University of Oxford Blavatnik School of Government, argued that the U.S. should reject the UAE's request.
Their reasoning? "UAE is not Argentina," they wrote. The UAE faces no real financial stress on its dirham peg or reserves, and the country can still raise funds easily in global markets. They warned that the U.S. Treasury's Exchange Stabilization Fund should not be used as a geopolitical bailout tool for countries that are not in genuine financial distress.
For his part, the UAE trade minister clarified that the swap is not about bailing out, but rather about facilitating transactions and investments between the two nations.
Still, the economists' warning is clear: just because a country asks for a swap line doesn't mean it needs one. And the U.S. should be careful about who it lends its financial stability to.
