Power of the Purse: Is the U.S.-Argentina Currency Swap Legal—and Should It Be?

By Anneka Lupinek '27

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Argentina is in financial trouble: it is running out of cash. The Argentine Central Bank can print pesos, but many of its obligations—including imports and debt payments to other countries—require U.S. dollars. On October 9, the Trump Administration finalized a deal with Argentine President Javier Milei. The plan includes a $20 billion currency swap of U.S. dollars for Argentine pesos. (1) Critics argue that Treasury Secretary Scott Bessent should not be able to use the Exchange Stabilization Fund to finance the swap without congressional approval. However, 31 U.S. Code § 5302 explicitly grants Bessent this power, saying that “the Secretary or an agency designated by the Secretary… may deal in gold, foreign exchange, and other instruments of credit and securities the Secretary considers necessary.” (2)

Executive branch authority over the Exchange Stabilization Fund (ESF) has expanded far beyond what is necessary to maintain U.S. economic stability. The International Monetary Fund (IMF) provides a safer and more transparent mechanism to aid struggling allies, rendering ESF intervention unnecessary in most cases. Yet the broad language in 31 U.S. Code § 5302 has weakened Congress’s constitutional control over the purse and enabled the ESF to grow far beyond its intended scope. Although the Argentine currency swap is legal under 31 U.S. Code § 5302, it should not be. Its legality demonstrates that the code is too broad and in need of amendment.

The “power of the purse” is a core pillar of legislative authority, rooted in the Constitution’s allocation of fiscal powers to Congress. (3) The Appropriations Clause extends this principle by prohibiting any withdrawal of funds from the Treasury without an act of Congress. (4) Until the 20th century, the executive branch’s spending authority was tightly constrained by these provisions.

The Argentine agreement has two parts. First, the Treasury purchased Argentine pesos on the open market using foreign exchange reserves. Second, a $20B currency swap will be conducted with ESF money. Under the swap, the U.S. will agree to deposit dollars in the Argentine Central Bank in exchange for an equivalent value of pesos. (5) The payments will not be made until the swap is activated–that is, until either of the two countries decides to withdraw money. (6) At the end of a predetermined period, the currencies will be swapped back. (7) In theory, Argentina will use the U.S. dollars to finance its debts, stabilize imports, and cover short-term obligations. If its economy stabilizes and the peso strengthens, the U.S. will be repaid at a profit.

However, the deal carries significant risk. If Argentina is unable to repay the swap, the U.S. will incur losses. There is no guarantee the Argentine economy will stabilize as a result of the arrangement–Argentina has already received $14 billion in IMF support this year, and it failed to meet key IMF targets this summer. (8) Uncertainty also surrounds President Javier Milei’s aggressive anti-inflationary policy, as it is too early to determine the results of his sweeping fiscal cuts and market reforms. Any deterioration in market conditions is likely to weaken the peso further, making repayment even more difficult. Milei’s ideological alignment with Trump has raised additional concerns. Treasury Secretary Scott Bessent characterized the swap as a “use [of] American economic power… to stabilize a friendly government,” fueling speculation that the administration is ignoring economic risks because of Milei’s value as a political ally. (9)

Although the Argentine currency swap is a clear exercise of the “power of the purse,” Congress played no role in authorizing it. Bessent’s ability to deploy ESF funds traces back to the Franklin D. Roosevelt administration’s Gold Reserve Act of 1934. (10) Drafted at the height of the Great Depression, the Act was designed to give the executive branch greater flexibility to act quickly during financial crises. It transferred all monetary gold to the Treasury and created a $2 billion Exchange Stabilization Fund. The Treasury could use the fund “to control the dollar’s value” by buying or selling gold, foreign currencies, and other financial instruments. (11) In practice, the Gold Act dramatically bolstered Treasury authority at Congress’s expense by allowing the ESF to operate without congressional appropriations or Federal Reserve coordination. (12) (13)

In 1982, Section 10 of the Gold Reserve Act was codified as 31 U.S. Code § 5302, where it was updated to include rules on earnings, statutory limits, and presidential approval. (14) The codification also omitted a crucial constraint on the Treasury’s power. Where the Gold Act allows use of the ESF “as the secretary sees necessary to stabilize the exchange value of the dollar,” 31 U.S. Code § 5302 permits any use of the ESF that the “secretary sees necessary.” (15) (16) As a result, 31 U.S. Code § 5302 allows policy that clearly extends beyond the ESF’s intended scope. 

This statutory shift opened the door to wider use of the ESF. Over the following decades, ESF funds were repeatedly extended to developing economies to prevent international financial crises. For example, President Clinton’s Treasury extended a $20 billion ESF-backed currency swap to Mexico to stabilize the peso during the 1994 “Tequila Crisis.” (17) This intervention was an economic success, leaving the U.S. with a $500 million profit. (18) However, it further eroded congressional authority: the swap was carried out even after Congress rejected President Clinton’s request for an appropriation. (19)

There is little reason to rely on the ESF for routine foreign rescues. A more balanced framework is available—one that preserves Congress’s fiscal authority while still allowing rapid responses to global crises. Although ESF support may be warranted in extreme crises, the International Monetary Fund—not the U.S. Treasury—should assist struggling economies under normal circumstances. Created in 1944 to maintain global exchange-rate stability, the IMF broadened its mission after the 1973 collapse of fixed exchange rates to include managing debt crises in developing countries. This expanded mandate, combined with more than $930 billion in lending capacity, largely eliminates the need for unilateral U.S. rescue operations through the ESF. (20) (21)

Proponents of the Argentine swap point out that since Argentina has already exhausted a large share of IMF support, further assistance is necessary. However, this alone does not justify putting ESF funds at risk. Unlike Mexico in 1994, whose financial instability posed immediate dangers to U.S. markets, Argentina’s exposure to the U.S. economy is minimal. (22) (23) The country also accounts for only 0.6% of global GDP, making it unlikely that an Argentinian collapse would cause major economic problems for the rest of the world. (24) 

Bessent effectively concedes that Argentina’s currency shortage poses no significant threat to the global economy, since his justification for the swap rests almost entirely on geopolitical considerations. Although he references market stability, Bessent never claims that Argentina’s collapse would harm the U.S. economy. Instead, he emphasizes that the swap will “set the tone in Latin America.” (25) The ESF–created with the narrow purpose of stabilizing the dollar’s exchange value–is now being used to advance political objectives in Argentina. The fact that this use is lawful indicates a deeper problem with the statutory framework.

The broad language of 31 U.S. Code § 5302 concentrates too much power in the executive branch. During the “Tequila Crisis,” Federal Reserve Board Governor Lawrence Lindsey worried that by supporting a currency swap, “the Fed was effectively helping the Treasury to subvert the will of Congress”––and he was correct. (26) Because the ESF operates outside the annual appropriations process, its funds––despite being backed by taxpayer resources–are not subject to congressional approval. This structure strengthens executive authority and weakens Congress’s constitutional control over the purse. 

As the original intent of the Gold Act fades from memory, the Exchange Stabilization Fund risks devolving further into a political instrument. Bessent’s geopolitical justifications for the Argentine swap illustrate this shift. The narrow, currency-stabilizing purpose of the ESF must be articulated in explicit statutory language. Congress should amend 31 U.S. Code § 5302 to include the Gold Act’s key limitation: that the Exchange Stabilization Fund should only be utilized “as the secretary sees necessary to stabilize the exchange value of the dollar.” (27) This clarification would retain the Treasury’s ability to act in extraordinary circumstances while reasserting Congress’s control over the purse.

Endnotes

1. Michael Stratford, “Trump Administration Moves to Finalize Economic Rescue Plan for Argentina,” Politico, October 9, 2025. https://www.politico.com/news/2025/10/09/trump-economic-rescue-argentina-00600290.

2. Cornell Law School, 31 U.S. Code § 5302 - Stabilizing Exchange Rates and Arrangements. Legal Information Institute. https://www.law.cornell.edu/uscode/text/31/5302. 

3. U.S. Constitution, Art. 1, § 8.

4. U.S. Constitution, Art. 1, § 9, cl. 7.

5. Michael Stratford, “Trump Administration Moves to Finalize Economic Rescue Plan for Argentina,” Politico, October 9, 2025. https://www.politico.com/news/2025/10/09/trump-economic-rescue-argentina-00600290.

6. Martina Jaureguy, “How Does the US-Argentina Currency Swap Work? - Buenos Aires Herald,” Buenos Aires Herald, October 21, 2025. https://buenosairesherald.com/economics/how-does-the-us-argentina-currency-swap-work. 

7. Michael Stratford, “Trump Administration Moves to Finalize Economic Rescue Plan for Argentina,” Politico, October 9, 2025. https://www.politico.com/news/2025/10/09/trump-economic-rescue-argentina-00600290.

8. Brad W. Setser, “Will Trump’s $20 Billion Backing Help Milei Change Argentina’s Fortunes?” Council on Foreign Relations, October 14, 2025. https://www.cfr.org/article/will-trumps-20-billion-backing-help-milei-change-argentinas-fortunes. 

9. David Lawder, “Bessent Vows That US Won’t Lose Taxpayer Money Aiding Argentina | Reuters,” Reuters, 2025. https://www.reuters.com/world/americas/bessent-vows-that-us-wont-lose-taxpayer-money-aiding-argentina-2025-10-26/. 

10. Federal Reserve Bank of St. Louis, Gold Reserve Act of 1934, 48 Stat. 337, FRASER. https://fraser.stlouisfed.org/title/gold-reserve-act-1934-1085. 

11. Ibid.

12. Gary Richardson, “Gold Reserve Act of 1934,” Federal Reserve History, 2013. https://www.federalreservehistory.org/essays/gold-reserve-act. 

13. Federal Reserve Bank of St. Louis, Gold Reserve Act of 1934, 48 Stat. 337, FRASER. https://fraser.stlouisfed.org/title/gold-reserve-act-1934-1085.

14. Cornell Law School, 31 U.S. Code § 5302 - Stabilizing Exchange Rates and Arrangements, Legal Information Institute. https://www.law.cornell.edu/uscode/text/31/5302. 

15. Federal Reserve Bank of St. Louis, Gold Reserve Act of 1934, 48 Stat. 337, FRASER. https://fraser.stlouisfed.org/title/gold-reserve-act-1934-1085. 

16. Cornell Law School, 31 U.S. Code § 5302 - Stabilizing Exchange Rates and Arrangements, Legal Information Institute. https://www.law.cornell.edu/uscode/text/31/5302. 

17. Walter Dellinger, Memorandum Opinion for the General Counsel, Department of the Treasury: Use of the Exchange Stabilization Fund to Provide Loans and Credits to Mexico, Office of Legal Counsel, U.S. Department of Justice. March 2, 1995. https://www.justice.gov/file/148296-0/dl?inline=. 

18. David Wessel, “What Is the Exchange Stabilization Fund? How Was It Used during COVID? How May It Be Used for Argentina?” Brookings, October 6, 2025. https://www.brookings.edu/articles/what-is-the-exchange-stabilization-fund-and-how-is-it-being-used-in-the-coronavirus-covid-19-crisis/. 

19. Ibid.

20. “What Is the IMF?” Council on Foreign Relations, 2023. https://www.cfr.org/backgrounder/what-imf. 

21. “Where the IMF Gets Its Money,” IMF, December 19, 2023. https://www.imf.org/en/about/factsheets/where-the-imf-gets-its-money. 

22. David M. Gould, “Mexico’s Crisis: Looking Back To Assess the Future,” Federal Reserve Bank of Dallas, 1995. https://www.dallasfed.org/~/media/documents/research/er/1995/er9502a.pdf. 

23. “Argentina: Foreign Investment,” Santander Trade, 2025. https://santandertrade.com/en/portal/establish-overseas/argentina/foreign-investment. 

24. “Argentina GDP,” Trading Economics, 2025. https://tradingeconomics.com/argentina/gdp. 

25. David Lawder, “Bessent Vows That US Won’t Lose Taxpayer Money Aiding Argentina | Reuters,” Reuters, 2025. https://www.reuters.com/world/americas/bessent-vows-that-us-wont-lose-taxpayer-money-aiding-argentina-2025-10-26/. 

26. Tim Sablik, “The Fed’s ‘Tequila Crisis,’” Federal Reserve Bank of Richmond, 2017. https://www.richmondfed.org/publications/research/econ_focus/2017/q1/federal_reserve. 

27. Federal Reserve Bank of St. Louis, Gold Reserve Act of 1934, 48 Stat. 337. FRASER. https://fraser.stlouisfed.org/title/gold-reserve-act-1934-1085.