What Strings Will Trump Attach to Dollar Lifelines?

When passengers across the aisle ask to borrow your life jacket as the flight gets bumpy, you will wonder what they know that you don’t. It’s the same when one of the richest Gulf states quietly asks the US for a backup credit line. Reports that the United Arab Emirates is one of several countries that have requested a dollar swap line trigger obvious worries about global financial risks. Even more important will be how the Trump administration responds.

Limited credit lines extended by the US to reliable central banks have been crucial in restoring confidence when markets come under stress. But any decision to bail out a favored few or to attach geopolitical strings to the loans will sow doubts about a dollar backstop that has headed off disaster in the last two global crises. President Donald Trump’s capricious trade agenda and surprise Argentina bailout last year should give everyone pause, and the incoming chair of the Federal Reserve could face an immediate decision far more delicate than cutting interest rates in the face of rising inflation.