Can you spare the Gulf a dime?

Weekly Updates

Several Gulf countries have discussed receiving dollar swap lines from the US. In the near term, there is an economic drag if volumes of oil and gas sales have fallen by more than the price effect can offset, or where tourist and business travel has dried up. The effect is similar to that of the pandemic: slowing growth and fiscal revenues, and accelerated demand for fiscal spending.
Gulf central banks hold dollar reserves in liquid assets like Treasury bonds and bills. However, using these reserves for fiscal support would be unwise. It would rapidly call into question the stability of the region’s currency pegs to the US dollar.
Gulf sovereign wealth funds are different. The region’s wealth fund holdings (in excess of USD 5tr) are not for currency stability, but to provide long-term income streams. Gulf sovereign wealth fund holdings skew toward US dollar-denominated assets, but they are generally held in less liquid assets.
Using these assets to meet short term fiscal needs risks disrupting US markets. That might risk a vicious downwards spiral (like the UK’s Truss debacle). Swap arrangements give Gulf economies the cash without creating disorderly markets. However, in the longer term, the need to reconstruct and rearm means that asset sales may be considered.