Federal Reserve Chair nominee Kevin Warsh argues that the Fed's statutory independence does not fully extend to international policy. He made these remarks in a written response released Tuesday (April 28) to Democratic senators' questions regarding the Fed's power to establish currency swap lines.

In these written responses, Warsh also explicitly denied any connection to the late sex offender Jeffrey Epstein and hinted that he would support the Federal Reserve Inspector General in handling the federal criminal investigation into the Federal Reserve under current Chairman Jerome Powell.

Currency swap lines become a focus of attention in Washington.

The issue of currency swap lines has recently become urgent in Washington. Media reports previously indicated that the UAE had requested the establishment of a currency swap line during discussions about potential US assistance for the economic consequences of a potential war with Iran. Finance Minister Scott Bessent subsequently stated that several Gulf states and Asian countries had also requested the establishment of such lines.



Massachusetts Democratic Senator Elizabeth Warren asked Warsh whether he believed the Federal Reserve had the right to refuse a Treasury Department request to open a swap line for a country, or whether the Federal Reserve needed to consult with the Treasury Department when opening or closing a swap line.

In responding to these questions, Warsh did not directly mention "currency swap lines." He wrote, as he has stated on other occasions, that "the Fed's independence reaches its zenith in the actual operation of monetary policy," in other words, it has the highest degree of independence in setting interest rates.

He further stated, "In matters involving international finance, Federal Reserve officials do not enjoy the same special respect. In these matters, the Federal Reserve will cooperate with the government administration and Congress."

When asked to elaborate on his views, Warsh declined to comment. The Treasury Department and the Federal Reserve also declined to comment.

The role and background of currency swap lines

Currency swap lines can serve various purposes. During the 2007-2008 financial crisis, the Federal Reserve provided swap lines to several large developed economies, helping countries like the UK secure sufficient dollars during the liquidity crisis. While initially implemented as an emergency measure, these measures later came to be seen as a symbol of prestige, as only a select few countries could directly obtain dollar liquidity from the Federal Reserve.

The Federal Reserve typically views currency swap lines as a tool to ensure the smooth functioning of markets, rather than a means of providing assistance.

The U.S. Treasury can also deploy currency swap lines. Bessant provided a Treasury swap line to the Argentine peso last year when it faced a currency run. However, using this tool usually indicates an emergency crisis, which countries like the UAE are not currently facing.

Walsh's nomination is progressing smoothly and is expected to be confirmed by the Senate.

On Wednesday, the Senate Banking Committee voted along party lines to pass a motion to submit Warsh's nomination to the full Senate for a vote. Given that Powell's term ends on May 15, Warsh is likely to secure enough support in the Senate to smoothly assume the position of Federal Reserve Chairman.

Walsh personally attended the committee hearing last week and subsequently provided written answers to the senators' questions. On Tuesday, Senate Democrats released their responses to the questions. A person familiar with the responses revealed that they were submitted to the committee on April 23, two days after Walsh confirmed the conclusion of the hearing.

Senate Banking Committee majority Republicans do not plan to release Warsh's full responses to them, but individual Republican senators may release their own.

Walsh denies any connection to Epstein for the first time.

In his written response, Walsh explicitly denied any connection to Jeffrey Epstein for the first time. Walsh's name appeared in Epstein-related documents on a list of potential attendees at a party in St. Barth's in December 2010. Senator Warren asked Walsh if he had attended any parties with Epstein and his girlfriend, Ghislaine Maxwell, or met with them. Maxwell is currently serving a prison sentence.

Walsh responded that he was indeed on St. Barth Island at the time, but did not meet with Epstein. He stated, "I don't know these people, I haven't attended any of their events, and I don't recall ever attending any events where these people were present."

Support for Federal Reserve Inspector General's Investigation in Response to Recent Controversy

Warsh's response also touched on a recent controversy surrounding the Federal Reserve. Jeanine Pirro, the U.S. Attorney for the District of Columbia, said last Friday that she would drop her investigation into cost overruns in the Fed's ongoing headquarters renovation project, allowing the Fed's Inspector General to continue the investigation.

In response to another question related to the investigation, Warsh made a broad statement in support of the Federal Reserve Inspector General. He wrote, "Throughout my career, I have always respected and supported the work of the Inspector General, and if confirmed, I will continue to do so at the Federal Reserve."

Overall , Kevin Warsh clearly articulated his definition of the Federal Reserve's independence in his written response, while also stating his position on sensitive issues such as international financial cooperation, personal connections, and internal investigations. With his nomination about to enter the Senate vote, how Warsh will balance independence and cooperation in handling monetary policy and international affairs will be a key focus for the market and the wider community.