Hidden in Plain Sight: The Federal Reserve's Role in U.S. Foreign Policy

Abstract

Imagine that the Federal Reserve Board (FRB) had established swap lines to the Central Bank of Russia in the midst of the financial crisis. Then suddenly, a diplomatic crisis broke out. Would the FRB be forced to unwind those swap lines? How would the President and Congress coordinate with the FRB in crafting a foreign policy response? What legal authorities, conventions, or guidelines govern FRB decisions with implications for foreign affairs? The short answer is none. No formal guidance, statutory or otherwise, governs whether or how the FRB should interact with the political branches on foreign policy matters. By design, the FRB is protected from political interference and gains legitimacy through such independence. It does not take direction from the President or Congress. And its decisions are intentionally shielded from public scrutiny. This independence complicates coordination processes and norms that govern other foreign policy actors. The limited legal scholarship considers the FRB from an administrative law perspective and places the agency in a domestic centered conversation. While some have pointed out the FRB's role in international markets, legal scholars have yet to grapple with the effects of central bank independence in the context of foreign policy matters.