The Federal Reserve’s New York President William Dudley defended the opening of debt swap lines with Europe in front of a Congressional Committee today. Dudley said that the instrument was provided in the interests of the United States and its people, not just in the interests of the European currency and institutions. He pointed to the profitability of debt swap lines which have made a profit every time they have been opened since 1962. The interests of the United States were covered in both the profitability of the venture and the help provided to Europe. The economic backlash from a full on European crisis would drastically affect the US economy and could turn around the recent recovery the country has been seeing.

Dudley made his statement in front of the House of Representatives Financial Services Subcommittee. He commented on the outlook for Europe and the importance of the currency and political block in ensuring growth in the United States. He said he hoped and anticipated a recovery on the continent but insisted that the Federal Reserve would not be taking an active role in ensuring that recovery in the near future. He made it clear that Europe was an important asset to the United States economy and any loss of the continent’s ability to do business would have resounding ill effects on the United States.

Commenting on the debt swaps he said that they added stability to Europe’s banking system and alleviated some of the pressure felt by debt wracked states. He said the swaps have reduced the risk of European institutions selling their Dollar assets quickly, a move that would have negatively affected the American economy’s recovery.

He pointed to the success of the swaps undertaken between 2008 and 2009 which garnered $4 billion in profit for the taxpayer. He added that the swaps were encouraging the continued use of the Dollar as the world’s reserve currency, a change in which has been encouraged by emerging nations. During the financial crisis many had advocated the use of Euro to replace the Dollar though that movement probably receives less support as the currency is perceived as unstable and likely to collapse.

Dudley’s defense of the debt swap lines and his optimism on a European recovery may sound appropriate but questions have to be asked about the central bank’s use of its power. Many would ask questions of the levels to which the Federal Reserve system uses its power to effect the dollar and the US economy. Critics have cited their policies since the financial crisis, and before it, of overstepping the bounds laid down for it. With Dudley’s staunch defense of the debt line swap centering on how saving Europe is important to the US, and surely it is, does the job of the United State’s central bank become the defense of any economy worldwide as a preemptive measure in the recovery of the United States? These are questions that should be asked when facing such a power excercised by the government.