It is not a question of if there will be another severe crisis in the US and international financial system but rather when and how it might take place. And a related question now arising is whether in such a crisis, the US central bank will provide dollars to other central banks to try and alleviate it.

In the past, such a question would never have been raised. But such is the turmoil in trade relations, the financial system and international relations more broadly, set off by the actions of the Trump administration—amid the realization that the “norms” of the post-war order have been shattered—it is now being asked.

In 2008, the global financial system came to the abyss with the collapse of the investment bank Lehman Brothers and the revelation that the parasitic, and in some cases outright criminal practices of major US banks and financial houses that had characterized the sub-prime mortgage market, were rife throughout the financial system.

It was only pulled back through major interventions by the US government and the Federal Reserve as Washington bailed out corporations while the Fed pumped money into the financial system.

Again, in March 2020, at the start of the COVID pandemic, the global financial system entered a major crisis when the market for US Treasury bonds—US government debt—froze for several days when there were no buyers for supposedly the safest financial asset in the world.

And once again, the government came to the rescue with billions for corporations as the Fed bought up financial assets to the tune of several trillion dollars, lifting its so-called quantitative easing program to new levels.

In both cases, there was an international dimension to the US operation. It is a characteristic feature of all financial crises that there is a “dash for cash”—an attempt to liquify financial assets, the value of which has become completely uncertain.

In the integrated and international financial markets of today, this means a heightened demand for the global currency, the US dollar. But unlike the Fed, other central banks cannot create more dollars at the press of a computer button. They must be supplied with them by the US central bank in a process known as dollar swaps.

The amounts are not small. In 2008, the US provided $583 billion in swap lines for other major central banks to enable commercial banks to meet the demand for US dollars. In the March 2020 crisis, the Fed provided $450 billion in swap lines. There was a smaller amount made available in the euro zone crisis of 2012.

In his memoir of the 2008 crisis, the then Fed chair Ben Bernanke underscored the importance of the swap lines, saying they were “crucial in containing global contagion.”

At present, the Fed has five standing swap lines with central banks in Europe, Japan, and Canada. But they are not permanent and have to be reconstituted annually by Congress, which delegates this power to the Fed and can revoke it. This has raised concerns that Congress may act, if not to withdraw the authority, then to extract demands on countries whose central banks receive the dollars in line with the nationalist agenda of the Trump administration.

Vice President JD Vance for one, is on record as saying that he “just hates bailing out Europe.”

The issue of swap lines is under discussion in European financial circles, as reported in March by Reuters, citing six unnamed people “familiar with the matter.”

“Some European central banking and supervisory officials are questioning whether they can still rely on the US Federal Reserve to provide dollar funding in times of market stress … casting some doubt over what has been a bedrock of financial stability,” it said.

The report said they considered it “highly unlikely” the Fed would not provide a backstop.

“But the European officials have held informal discussions about this possibility … because their trust in the United States government has been shaken by some of the Trump administration’s policies.”

That report was published back in March. Since then, the shaking has gotten worse, following the April 2 reciprocal tariffs imposed by the US which, despite the pause and supposed negotiations, completely upended the post-war trading system.

In April, in direct response to a question on the issue, Fed chair Jerome Powell said the central bank remained committed to providing dollars to its counterparts. “We want to make sure dollars are available,” he said.

But unlike the setting of interest rates, the issue of swap lines is not under his control but is determined by the authority of Congress. And there is also concern about what may happen next year when Trump has the opportunity to replace Powell with one of his supporters, as he has done in other areas of the state, most notably the military.

A further report by Reuters in May indicated that the issue of dollar swaps had gone beyond discussions among officials.

“European Central Bank supervisors are asking some of the regional lenders to assess their need for US dollars in times of stress, as they game out scenarios in which they cannot rely on tapping the Federal Reserve under the Trump administration,” it said, citing three people with knowledge of the discussions.

“Nearly one-fifth of the euro banks’ funding needs are denominated in US dollars, with the lenders borrowing in markets for short-term funding that can shut down abruptly in times of financial stress.”

The report drew attention to the critical role in the crisis which engulfed Credit Suisse in March 2023 and led to its takeover organized by the government and the Swiss central bank.

“As the market’s confidence in the Swiss lender withered and clients withdrew tens of billions of dollars, its peers quickly reduced their exposure to the bank … The Fed provided tens of billions of dollars to the Swiss National Bank … which in turn enabled Credit Suisse to meet client demand for cash, averting a broader crisis.”

Writing in the Financial Times in April, Brown University professor Aditi Sahasrabuddhe, who has made a study of central bank cooperation in crises, said if faith in the ability of the Fed to provide dollars diminished, the effects would be global.

“It is hard to tell how serious the risk of that is, but we are in unusual times. And the fact it is even starting to be talked about is a concern.”