The UAE doesn’t want a loan from DC — but it does want to send a message

Everyone’s talking about the currency swap the UAE is reportedly discussing with the US — but most media outlets have got it wrong. Many — we’re looking at you, New York Times and Wall Street Journal — have framed it as a “loan” and a “lifeline,” but that’s just poor headline writing.

First up: The UAE has plenty of greenbacks in the bank — USD 300 bn at the end of February, thank you very much — so this is not a matter of shoring up FX reserves. Second: It won’t have burned even a fraction of that despite the drying up of FX revenue streams since the war began.

Plus: The UAE has easy, affordable access to the global debt market. To pick but one recent data point: Investors placed bids for nearly 5x more than was on offer in the UAE’s AED 1.1 bn Islamic treasury sukuk auction yesterday. The Finance Ministry priced the 2033 tranche at a 10 bps spread over US Treasuries, anchoring the long end of the AED curve.

So why? Why would you need a “financial lifeline” if you have USD 300 bn in the vault? Think of it this way: Most of the UAE’s USD holdings are parked in the central bank or locked up in big sovereigns, including Adia, Mubadala, ADQ, and L’Imad. Meanwhile, the banking system is being starved of USD inflows from the oil trade and tourism, thanks to the war — but banks still need to clear trade, settle payments, and roll their own USD liabilities. Oh, and the swap? It costs nothing and may never be used. It’s cheap ins.

“Currency swap agreements between central banks are typically precautionary liquidity tools rather than emergency funding mechanisms,” banking and finance consultant and investment and trade strategy advisor Amjad Naser tells us. “They allow counterparties to access foreign currency (often USD) in exchange for local currency, with an agreement to reverse the transaction at a later date,” he says, emphasizing that “swaps act as a backstop rather than a primary funding source.”

What the UAE wants is the country-level equivalent of a secured credit card. The UAE is facing a “liquidity mismatch,” not running out of ready capital, Ryan Lemand, a former advisor to the UAE government and founder and CEO of wealth manager NeoVision, writes in a LinkedIn post we’ve previously quoted. “No one is giving anyone money. It's a currency loan, secured by a currency deposit, with no credit risk on either side,” Lemand adds. The Fed, he notes, has standing swap lines with EU, Canadian, Japanese, and UK central banks. “None of those counterparties were receiving ‘aid.’”

A Federal Reserve swap line would act as a high-signal liquidity buffer, reinforcing confidence in the UAE’s financial system despite its already strong FX reserves and external position, Naser says. Ultimately, the arrangement would enhance the UAE’s strategic flexibility amid shifting global trade dynamics and heightened volatility, Naser notes.

What’s in it for the US?

For starters, the US doesn’t want to see countries around the world — squeezed by the fallout from its war on Iran — start dumping treasuries. US Treasury Secretary Scott Bessent told the Senate that “swap lines, whether it’s from the Federal Reserve or the Treasury, are to maintain order in the [USD] funding markets and to prevent the sale of the US assets in a disorderly way. The swap line would both benefit the UAE and the US.”

“These financial moves may also signal the UAE edging closer to the US after Iranian attacks during the war,” Geoeconomist Celine Bteish and MENA Economist Hamzeh Al Gaood write in a research note seen by EnterpriseAM. The swap represents a vehicle for Washington “to counter Chinese regional influence,” particularly in light of existing facilities with the People’s Bank of China.

The Wall Street Journal also warned that the UAE had intimated it was considering pricing oil in RMB, and that claim spread like wildfire, feeding into a multiyear story arc that has seen actors including Russia, China, and in some emerging markets picking at the USD’s position as the world’s currency of choice for trade and reserves.

Why would the UAE float pricing oil in RMB? It’s about a better position at the bargaining table. On the one hand, no US administration can accept a challenge to the dominance of the petrodollar. On the other, the UAE is looking to bolster its bargaining position across several strategic fronts. Key priorities include securing continued access to AI chips and compute (had been a thorny issue until Abu Dhabi turned its back on Chinese tech), the restocking of air defense systems, and finally getting access to the F-35 program (still stalled). Beyond defense, the UAE wants to ensure that its investments in the US (demanded by Trump) get preferential treatment from prickly regulators (hello, CFIUS — and pre-cleared investment corridors or AI and critical tech infrastructure). Ultimately, the UAE is seeking to lock in a seat at the post-war regional table. There’s a reason, friends, that the crown prince of Abu Dhabi was in Beijing earlier this month.

The trend is also bigger than just the UAE or the US

The UAE is also strengthening its fiscal buffers and “evolving its non-USD denominated swaps,” Naser said, highlighting a broader shift supporting de-dollarization and deeper financial ties with Asian markets. Recent agreements include a USD 5.4 bnswap with Bahrain, as well as an AED 18 bn facility with China in 2023 and a USD 4.9 bn swap with Turkey last year.