Abstract:  At the time of international financial crises, emergency currency swap agreements can function as a safety net. In addition to the IMF, there are several regional arrangements. On the bilateral side, the US Federal Reserve has currency swap arrangements with dozen or so countries, and China has recently expanded its RMB-swap to more than 30 countries. Among them, the Central Bank of India and the Bank of Japan are the only non-dollar issuing central banks that have signed dollar-denominated bilateral swap arrangements (BSAs) with foreign central banks. Under such arrangements, the two central banks provide lines of dollar swaps instead of their own currencies in exchange for their BSA partners’ local currencies when requested. This is surprising, as such BSAs indicate that Japan and India’s are strongly committed to protect their partners’ financial security even at the expense of their own dollar reserves. What has led Japan and India to pursue such arrangements? What are the political economic motivations behind their policy choices? This paper argues that Japan and India’s dollar denominated BSAs are strategic responses to their geoeconomic competition with China and its rising financial influence in their regional spheres of influence. Geoeconomic competition occurs when countries seek to maximize their economic power in the order structure of a region, or at the global level. By offering Dollar denominated BSAs, Japan and India can increase the creditors’ political influence over target economies, but also prolong dollar dominance in the region. Even if the BSAs do not directly target China, this effectively limits the potential expansion of the RMB’s influence. By comparatively examining the motivations and instruments of these two monetary authorities, the paper illustrates how currency swaps make up an important geoeconomic strategy.

^{Saori N. Katada is Professor of Political Science and International Relations Department at University of Southern California and vice president of International Studies Association (April 2021-March 2022). Her book Japan’s New Regional Reality: Geoeconomic Strategy in the Asia-Pacific was published by Columbia University Press in July 2020. She is also a co-author of two recent books: The BRICS and Collective Financial Statecraft (Oxford University Press, 2017), and Taming Japan’s Deflation: The Debate over Unconventional Monetary Policy (Cornell University Press, 2018).  She has her Ph.D. is from the University of North Carolina at Chapel Hill (Political Science), and her B.A. from Hitotsubashi University (Tokyo).  Before joining USC, she served as a researcher at the World Bank in Washington D.C., and as International Program officer at the UNDP in Mexico City.}