Tough poker in the US with the dollar - Washington moves towards currency swap agreements
The US is seeking to further strengthen the dollar's position as the global reserve currency, amid China's efforts to further strengthen the influence of the yuan. An escalating currency war is playing out beneath the surface between the United States and China. Concerns about America's growing debt and its aggressive use of sanctions to isolate rivals from the Western financial system have raised doubts about the dollar's security as the world's reserve currency.
These developments have led to increased demand for gold and a growing number of oil transactions using cryptocurrencies or the Chinese currency, the yuan. The erosion of the dollar's dominance would be a problem for the US economy, but in recent weeks the US has taken steps to increase the use of its national currency.
At the heart of this strategy are discussions between the Trump administration and several countries in the Persian Gulf and Asia about the possibility of the United States offering so-called currency swap lines. These moves, which could be made either through the Treasury Department or the Federal Reserve, would essentially ensure that America’s allies have sufficient reserves of dollars, reducing the need to trade in the yuan or other currencies, the sources said. With the swap system, the United States buys another country’s currency, giving that country more dollars, which it then uses to trade oil.
Treasury Secretary Scott Bessent is leading the talks on these currency swaps. In a Senate hearing last month, Bessent revealed that he had discussed a currency swap with the United Arab Emirates, an oil-rich ally facing economic fallout from the Iran war. The Treasury secretary explained that he supported the idea to maintain order in dollar funding markets and prevent a disorderly sell-off of U.S. assets.
The US dollar is the most widely used currency in the world, accounting for 89% of foreign exchange transactions in 2025. The euro is in second place, with 29% of transactions, according to data from the Bank for International Settlements (BIS). Since there are two currencies per foreign exchange transaction, the percentages add up to more than 100.
Globally, the five largest holders of foreign exchange reserves in 2024 were China, Japan, Switzerland, India and Russia. In 2024, China alone held 26% of all foreign exchange reserves worldwide, while Japan followed with 9%, according to data from the International Monetary Fund.
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