Just now, the Federal Reserve's next chairman revealed their stance: dollar swaps are about to become a nuclear weapon, and the UAE is the first to be targeted.

Kevin Warsh fought two and a half hours of fire in Congress to secure a seat at the Federal Reserve. Most of the debate centered around whether he would become Trump’s rate puppet—he said he wouldn’t.

But what really deserves your attention is the almost overlooked exchange when asked about the dollar. The prospective chair said, “America’s position in the world is at risk, including economic risks.” He then added that the Federal Reserve will cooperate with Bessent (Treasury Secretary) and Blinken (Secretary of State) on their “economic governance strategy.” Plain language translation: The Fed is embracing geopolitics.

One day later, Bessent revealed that the UAE and “many” Gulf and Asian countries have applied to the U.S. government for dollar swap lines. Trump was quick to respond: “If I can help them, I will.”

There are two signals here. First, these countries are worried about financial instability caused by the Iran war, and this concern is accelerating. Although the UAE ambassador denied it, smart money is quietly strengthening its defenses.

Second, power is shifting. Recall 2008, when Timothy Geithner’s New York Fed used dollar swap lines to rescue the market—at that time, the Fed had permanent arrangements with five Western central banks and temporary ones with nine others.

But last year, Bessent publicly criticized these arrangements. He said the Fed’s dual role of regulating banks and lending to banks created conflicts of interest. Post-crisis reforms expanded the Fed’s regulatory scope, but the results were disappointing.

Now, Bessent is gradually seizing power from the Fed. Two executive orders from the White House have weakened the Fed’s role in bank supervision. He has already met with insurance companies to discuss private credit risks and with bankers to discuss the Mythos AI model. At the end of last year, the Treasury bypassed the Fed and used the exchange rate mechanism to provide Argentina with a $20 billion swap line. The UAE’s line is very likely to follow this model.

From some perspectives, this is good. Bessent understands markets, and the people he brought into the Treasury are also experts. Since 2008, the Fed’s market expertise has indeed declined, and the Iran war could trigger new financial shocks—plus, Warsh has explicitly stated he won’t let the Fed swallow long-term bonds, and Bessent still plans to sell $10 trillion in bonds next year. The $20 billion swap with Argentina was successful.

But the other side of the coin is very dangerous. Domestic financial regulation will become increasingly politicized and more susceptible to White House influence. Even more deadly: dollar swap lines will be weaponized. The Fed has tried to downplay the geopolitical aspect, but Bessent openly states he will use swap lines to “lock in dollar dominance” and reward allies.

European financial officials are already uneasy. They worry that if they challenge Trump someday, these lines could be withdrawn. Bessent and Warsh might say: that’s the essence of geoeconomics.

The next question then is: if another financial crisis occurs, who will organize the global collective response? In 2008, Washington could do it because other central banks trusted the Fed and respected U.S. leadership.

Now, trust between central banks still exists. But against the backdrop of rising geopolitics and Trump’s unpredictability, will other governments listen to Washington during the next crisis?

Guess what. The UAE has already started acting, and Warsh’s hearing should ask more about this issue—don’t just focus on inflation and interest rates. Global financial stability is more important than anything.

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