ECB opens euro "lifeline" - In an effort to increase global role
The European Central Bank is opening its euro rescue line to almost all countries to boost the single currency's global role amid geopolitical turmoil. The ECB said potentially "all central banks" outside the euro zone would be allowed to borrow euros against collateral denominated in the eurozone currency.
The move, aimed at making it easier for foreign central banks to secure funds in euros in times of financial stress, is the latest part of Europe's strategy to win over trade and political friends and counter the United States and China.
The initiative fits into a broader effort by ECB President Christine Lagarde to capitalize on what she has called the euro's "global momentum" as unpredictable U.S. economic policy has raised new questions about the dollar's long dominance.
Created during the 2020 pandemic, the Eurosystem's repo facility for central banks, or Eurep, allows participating central banks to borrow euros from the ECB against high-quality collateral denominated in the single currency. Access to such a facility, known as a repurchase agreement, strengthens a foreign country's ability to withstand a foreign currency liquidity crisis. This can be essential for stabilizing the domestic banking sector.
All foreign central banks are welcome to join the expanded structure, except those subject to international sanctions - such as Russia's - or those involved in money laundering or terrorist financing. Eurep has so far been limited to just eight countries neighbouring the European Union. A central bank can request permanent access through a formal request from its governor to the ECB president.
Under the new terms, central banks can borrow up to 50 billion euros each against collateral, such as bonds issued by eurozone governments with a good credit rating. The new limit is much higher than the current maximum. As an emergency tool, repo lines are not used often and use has been modest in recent months.
Eurep will give foreign lenders an incentive to lend, trade and invest in euros, safe in the knowledge that they can access ECB assistance through their central bank if needed.
The repurchase agreements will be extended by some of the 21 national central banks of the Eurosystem that the ECB has not appointed. There are no restrictions on how foreign central banks can use the money. Until now, they were reserved for lending to their domestic banks.
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