Pakistan ABD'den 10 Milyar Dolarlık Kur Takası Talebinde Bulundu

The geopolitics behind Pakistan’s $10 billion US request

Pakistan has reportedly asked the United States for a $10 billion currency-swap facility from the US Treasury’s Exchange Stabilisation Fund. The request arrived at an extraordinary moment: the United States is at war with Iran, Pakistan has become an important channel for diplomacy between Washington and Tehran, and Islamabad is again trying to turn geopolitical relevance into economic relief. The details of the proposal remain unsettled. Its legal structure, pricing, maturity, conditions and permitted uses have not been publicly disclosed. It may not be approved, and even an approved line may never be drawn. Those qualifications matter. But they do not make the request politically unimportant. On the contrary, the very possibility of such a facility tells us something about how money and power now travel together. Pakistan already has extensive experience with bilateral financial support, most notably through its currency-swap arrangement with China. A US facility would add another layer to that relationship, placing Pakistan at the intersection of two competing monetary networks. Beijing’s swap lines support trade in renminbi, advance the currency’s internationalisation and reinforce China’s political influence. Washington’s provision of dollar liquidity sustains the dollar-centred financial order while rewarding countries that matter to US economic and strategic interests. Neither side offers liquidity in a geopolitical vacuum. Pakistan should welcome additional financial insurance, but it should not confuse access to someone else’s currency with a development strategy of its own. Not an ordinary central-bank swap A bilateral swap agreement (BSA), often called a currency-swap line, is a standing arrangement between two central banks, which are the public institutions that manage countries’ currencies and foreign-exchange reserves. “Bilateral” simply means that it involves two parties. “Swap” refers to a temporary exchange of currencies, while the “line” is the maximum amount available. Signing a $10 billion line therefore does not mean that $10 billion has been handed over or added immediately to a country’s usable reserves. It means the recipient has the right to request funds under agreed conditions. If the line is drawn, the transaction takes place in two stages. Suppose the State Bank of Pakistan needs dollars. It would provide an agreed amount of rupees to the supplying institution and receive dollars in return at an exchange rate set under the agreement. Subject to the facility’s rules, those dollars could then be used to supply domestic banks, pay for essential imports, meet external obligations or calm a disorderly foreign-exchange market. At maturity, the transaction is reversed. Pakistan returns the dollars, receives its rupees back and pays any interest or fees due. A swap is therefore neither a grant nor free money. Once drawn, it creates a liability that must be repaid. Its purpose is to bridge a temporary shortage of usable foreign currency and prevent that shortage from becoming a wider financial crisis. The precise maturity, cost, permitted uses and renewal terms vary from one agreement to another. The reported US proposal is institutionally different. Pakistan is seeking support from the Treasury’s Exchange Stabilisation Fund, not a Federal Reserve swap line. It should therefore not be presented as if Pakistan has joined the Fed’s established network of central-bank liquidity arrangements. Until the terms are public, we cannot know whether it would operate like a short-term currency swap, a balance-of-payments backstop or a more loan-like stabilisation facility. Still, the history of central-bank swaps is relevant because it reveals the politics governing access to emergency liquidity. During the 2008 global financial crisis, the Federal Reserve supplied swaps to only four emerging markets—Brazil, Mexico, Singapore and South Korea—while other requests were rejected. Aditi Sahasrabuddhe, a political scientist at Brown University, argues that the selection reflected more than financial need. The Fed favoured economies that were financially open, strategically useful and aligned with American preferences in global economic governance. When the economic case was ambiguous, political considerations helped determine who got access. Another study by Sahasrabuddhe shows that interpersonal trust among central bankers also shaped the network. Strong relationships brought access to larger or less restrictive facilities; countries outside those circles had to rely on more costly alternatives. In other words, the global financial safety net is neither universal nor politically neutral. It is partly a hierarchy of relationships. That lesson applies here. Washington does not make exceptional financial commitments merely because a country asks. If Pakistan were offered a large stabilisation facility, it would be reasonable to read it as a signal that the United States sees value in Pakistan’s economic stability and continued cooperation. Two currencies, two strategies Swap lines are often described as plumbing: technical arrangements that keep currencies and credit moving. But the provider decides where to install the pipes. For the United States, supplying dollars abroad helps preserve a system built around the dollar. The Fed’s crisis facilities protect American interests as well as foreign recipients. When dollars become scarce, overseas banks and borrowers can be forced to sell assets, default on dollar obligations or bid the dollar sharply higher. Providing liquidity contains those pressures, protects internationally exposed US financial institutions and reinforces the expectation that, in a crisis, the world still turns to the United States. The political returns can extend beyond markets. Yumi Park and Sujeong Shim find that, during the 2008 crisis, recipients of Fed swap announcements experienced an increase in government popularity while approval continued to fall in non-recipient countries. Their evidence points to exchange-rate stabilisation and greater room for expansionary policy as the mechanisms. The public may know little about the swap itself, but it notices a steadier currency and a government with more room to act. The issuer of the leading reserve currency consequently gains a form of leverage that other states cannot easily reproduce. China is trying to build some of that capacity for itself. After the global financial crisis, the People’s Bank of China rapidly expanded its swap network, helping to turn what had been a selective crisis-management tool into a much broader layer of the global financial system. By the end of 2020, an IMF study counted 91 participants and roughly $1.9 trillion in announced capacity across the worldwide bilateral-swap network. China was one of the main forces behind that expansion. Its authorities have identified three overlapping goals for Chinese facilities: promoting renminbi internationalisation, facilitating trade and investment, and providing renminbi liquidity for financial stability. Some Chinese swaps, including Pakistan’s, have also been used to address balance-of-payments pressure. This is financial statecraft. A currency becomes international not simply because a government declares it so, but because foreign firms, banks and governments can obtain and use it. Every trade payment settled in renminbi, every reserve manager willing to hold it and every central bank connected to the People’s Bank of China reduces, at the margin, dependence on dollars. China’s swaps create the institutional channels through which that change could occur. They also create political relationships. Recent research by Qi Liu, Xun Pang and James Raymond Vreeland examines 38 countries that signed swap agreements with China. On average, the authors find short-run movement towards China’s foreign-policy positions after a BSA is signed, with stronger and more persistent effects among financially vulnerable countries and governments already attracted to Chinese leadership. This does not mean every swap purchases a vote. Pakistan itself does not show a statistically identifiable post-swap shift in that study, probably because its relationship with China was already exceptionally close. The broader conclusion is nevertheless important: access to liquidity can alter a government’s incentives, especially when alternative sources are scarce. The United States and China therefore pursue different but comparable forms of monetary power. China wants to make the renminbi more usable and embed its partners in a China-centred network. The United States wants to preserve the dollar’s central role and retain influence over strategically significant states. A swap may be denominated in currency, but it is also denominated in trust, access and expectations about future cooperation. Why Pakistan matters now Pakistan’s reported request cannot be separated from the war with Iran. Islamabad has served as a mediator and a venue for US-Iran contacts, giving it a role neither Washington nor Tehran can easily dismiss. Its geography connects South Asia, China, Iran, Afghanistan and the Arabian Sea. Its military relationships with Gulf states, long partnership with China and ability to communicate across rival camps make it unusually useful during a regional conflict. For Washington, a financially stable and cooperative Pakistan can help sustain diplomacy, limit wider regional escalation and prevent Beijing from becoming Islamabad’s only dependable source of emergency support. A Treasury facility would also remind Pakistani elites that access to the dollar system can deliver benefits that the renminbi cannot yet fully match. The strategic message would be clear: Pakistan still has a place within the American orbit. For Pakistan, the attraction is obvious. A large dollar backstop could reassure markets, reduce the fear of an abrupt external-financing crisis and give the State Bank more room to manage volatility. Even an undrawn line may convey confidence. Pakistan has simultaneously been reducing near-term foreign liabilities, seeking longer-tenor financing and preparing a return to international capital markets. A credible backstop could reinforce those efforts by reducing rollover risk and reassuring lenders that Pakistan can meet its near-term dollar obligations. The timing supports a geopolitical interpretation, but it does not prove a quid pro quo. No public evidence shows that Washington has offered $10 billion in exchange for a specified Pakistani position on Iran, China or any other issue. Nor is approval guaranteed. Pakistan’s own history should caution against treating temporary strategic attention as a durable economic alliance. American interest has repeatedly risen and fallen with wars and crises in the region. Islamabad should also resist the temptation to convert its mediating role into participation in someone else’s war. Its economic interest lies in de-escalation. Conflict with neighbouring Iran would create security risks, disrupt energy and trade, strain domestic cohesion and compromise Pakistan’s ability to work with China and the Gulf states. The value Pakistan currently offers Washington is precisely its ability to communicate across dividing lines. Sacrificing that position would destroy the asset it is trying to monetise. Liquidity is not development The financial benefits of swap lines are real, but easily overstated. An undrawn facility is contingent financing, not an addition to usable foreign-exchange reserves. Once drawn, a swap creates a future repayment obligation. Repeated rollovers can make a short-term liquidity instrument resemble long-term debt, while allowing governments to advertise stronger headline reserves than their net position warrants. The Chinese experience demonstrates the risks. Pakistan signed its swap agreement with China in December 2011 and began drawing on it in 2013. The IMF found that Pakistan and Mongolia accounted for much of the approximately $8 billion outstanding under China’s overseas swaps at the end of 2020. The arrangement gave Pakistan breathing space and supported the use of regional currencies in trade. Yet the liquidity was not equivalent to unrestricted dollars. A recent working paper explains why markets have become more cautious about Chinese swaps. Renminbi cannot automatically service dollar-denominated sovereign debt. Conversion may introduce additional cost, exchange-rate risk and negotiation. Important conditions governing drawdown and convertibility are often opaque. In Pakistan’s case, experience showed that repayment in renminbi could become costly as the rupee depreciated. The authors find that Pakistan’s 2011 signing was initially followed by narrower bond spreads, but the reassuring effect of Chinese BSAs generally weakened over time as investors learned about their operational limits. This is not an argument against the Chinese facility. It is an argument for matching the instrument to the need. Renminbi liquidity is most useful for settling eligible imports from China, supporting bilateral trade and reducing the need to obtain dollars for those transactions. Dollar liquidity is more useful for dollar debts and for stabilising markets that still price risk in dollars. Pakistan can benefit from both, provided it does not pretend that the currencies are interchangeable or that either arrangement fixes structural weaknesses. The IMF study reaches the same sober conclusion: swap lines are now a valuable part of the global financial safety net, but there is little evidence that they automatically improve macroeconomic policy. They may even delay adjustment when governments use temporary liquidity to postpone necessary reform. Pakistan needs a swap strategy If the US proposal advances, Pakistan should negotiate and use it according to a publicly stated framework. First, the government should disclose the essentials: the facility’s legal form, currency, interest rate, maturity, renewal provisions, permitted uses, drawdown conditions and relationship to existing IMF commitments. The same transparency should apply to Chinese swaps. Markets cannot treat a backstop as fully credible when they do not know whether it can be used. Second, Islamabad should treat swaps as insurance, not income. Drawings should be triggered by genuine liquidity stress, disorderly currency conditions or clearly identified external payments, not by a desire to finance an import-led consumption boom. Gross reserves, net reserves and swap liabilities should be reported separately so the public can see what the State Bank owns and what it owes. Third, each currency should be used where it is most effective. Renminbi drawings should primarily support trade and obligations to China, while Pakistan should seek the broadest feasible convertibility and least costly repayment terms. Any US facility should strengthen the reserve buffer and smooth temporary dollar shortages, not underwrite an artificially strong rupee. Fourth, the breathing space must finance adjustment in the broad sense, not defer it. Pakistan’s chronic dollar shortage reflects a narrow export base, costly energy dependence, and recurrent import-led growth. Liquidity can buy time for export upgrading, energy reform, productivity-enhancing investment and better domestic revenue mobilisation. It cannot substitute for them. Finally, Pakistan should avoid allowing either facility to become an exclusive strategic claim. Maintaining access to both networks can increase national autonomy, but only if Islamabad is prepared to say no when financial support comes with policies contrary to Pakistan’s development interests. Diversification is valuable because it creates options, not because it permits the country to auction its foreign policy to the highest bidder. The proposed $10 billion US facility could be useful. So is Pakistan’s established swap relationship with China. But their greatest value would lie in helping Pakistan escape the cycle in which every reserve crisis produces another emergency request and every geopolitical crisis produces another temporary windfall. Washington and Beijing will continue to use money in pursuit of power. Pakistan’s task is to use their money in pursuit of development. Header image: A currency trader counts Pakistani Rupee notes as he prepares an exchange of US dollars in Islamabad, Pakistan, December 11, 2017. — Reuters/File