Are Dollars Popular? The Fed’s Currency Swap Arrangements and Recipient Governments’ Popularity

The Federal Reserve (the Fed) has emerged as a global lender of last resort by providing currency swap arrangements (CSAs) to foreign central banks. While existing literature has explored the economic consequences, there is limited understanding of their political ramifications. Using quarterly data from the 2008 Global Financial Crisis, we find that Fed swap lines are linked to increased domestic public support for recipient governments. We suggest this is because swaps are typically followed by exchange rate stabilisation and expansionary monetary policies. While ordinary citizens may not be aware of swaps, they perceive currency stabilisation and stimulus measures as signals of positive economic turnarounds, thereby increasing support for incumbents. The rise in approval ratings following CSAs is striking, especially given that CSAs are implemented during global shocks. Our findings demonstrate that the Fed, much like other international organisations, can influence foreign countries’ domestic politics.