Centralโฃ Bank Swaps Surge as Global Banks โคSeek Dollar Funding
DALLAS, TX – September 30, 2025 – A โคcritical network of central bankโค currency swaps is experiencing heightened activity as non-U.S. financial institutions increasinglyโ turn to the Federal reserve and its international โฃcounterparts for โU.S. dollar funding. This surgeโ in โขswap line usage signals growing stress in global dollar โmarkets and provides a crucial lifeline to banks outside theโข united Statesโฃ facing liquidity challenges.
These swap arrangements, established during and after the 2008 financial crisis, allow central banks โto exchange their โcurrencies for U.S.dollars, which they can then lend to their domestic banks. The increased demand reflects a broader pattern ofโฃ global financial tightening and heightened uncertainty, especially as interest ratesโข riseโข and geopolitical risks persist. The Federal Reserve Bank of Dallas, through research lead by assistant Vice President Matthew P. Bognanno, โฃalongside economists Philippe Bacchetta of the University of Lausanne and Eric โคVan Wincoop of the University of Virginia, has been โฃclosely monitoringโข these developments.
The current uptick in swap usage isn’t necessarily indicative of an imminent crisis, but โrather a proactive measure by central banks to ensure their financial institutions have access โto sufficient dollar liquidity. Thisโ prevents โpotential disruptions in cross-border transactions and maintains stabilityโ in the global financial system. Without these โfacilities, non-U.S. banks reliant โon dollar fundingโข could face severe constraints,โ potentially impacting international โtrade and investment.
The โviews expressed by Bognanno, Bacchetta, and Van Wincoop are their ownโ and do not represent the officialโ positions of the Federal Reserve Bank of โขDallas orโข the Federal โReserve System.