Central Bank Swaps Surge as Global Banks Seek Dollar Funding
DALLAS, TX – September 30, 2025 – A critical network of central bank currency swaps is experiencing heightened activity as non-U.S. financial institutions increasingly turn to the Federal reserve and its international counterparts for U.S. dollar funding. This surge in swap line usage signals growing stress in global dollar markets and provides a crucial lifeline to banks outside the united States facing liquidity challenges.
These swap arrangements, established during and after the 2008 financial crisis, allow central banks to exchange their currencies for U.S.dollars, which they can then lend to their domestic banks. The increased demand reflects a broader pattern of global financial tightening and heightened uncertainty, especially as interest rates rise and geopolitical risks persist. The Federal Reserve Bank of Dallas, through research lead by assistant Vice President Matthew P. Bognanno, alongside economists Philippe Bacchetta of the University of Lausanne and Eric Van Wincoop of the University of Virginia, has been closely monitoring these developments.
The current uptick in swap usage isn’t necessarily indicative of an imminent crisis, but rather a proactive measure by central banks to ensure their financial institutions have access to sufficient dollar liquidity. This prevents potential disruptions in cross-border transactions and maintains stability in the global financial system. Without these facilities, non-U.S. banks reliant on dollar funding could face severe constraints, potentially impacting international trade and investment.
The views expressed by Bognanno, Bacchetta, and Van Wincoop are their own and do not represent the official positions of the Federal Reserve Bank of Dallas or the Federal Reserve System.
