European Central Bank to Expand Access to Euro Liquidity Facility
The European Central Bank (ECB) announced on Saturday its intention to expand access to its euro liquidity facility, making it globally accessible and permanent in order to strengthen the international role of the single currency.
Repo Lines to be Made Available Worldwide
The repo lines allow central banks to borrow euros from the ECB, against high-quality collateral and with repayment due at maturity with interest, when they are unable to secure funding on the market. Until now, these lines were limited to a handful of countries, mainly in Eastern Europe. The ECB's President, Christine Lagarde, has long considered this mechanism as a tool to enhance the global reach of the euro.
Preparing for a More Volatile Environment
"The ECB must prepare for a more volatile environment," she stated at the Munich Security Conference, during the first intervention of the ECB's presidency at this annual event. "We must avoid a situation where these tensions trigger sudden sales of euro-denominated securities on global financial markets, which could hinder the transmission of our monetary policy," she added, announcing the new facility.
New Facility to be Available from Q3 2026
The new facility, available from the third quarter of 2026, will be open to central banks worldwide, provided they are not excluded for reputational reasons such as money laundering, terrorism financing, or international sanctions, the ECB said.
Strengthening the Role of the Euro
"This mechanism also strengthens the role of the euro," Lagarde added. "The availability of a lender of last resort for central banks around the world reinforces confidence to invest, borrow, and negotiate in euros, knowing that access will be ensured in the event of market disruptions."
Permanent Access to be Offered
Unlike previous lines, which had to be extended, the new mechanism will offer permanent access to repo lines of up to €50 billion.
Timing is Right for the Euro to Gain Market Share
As investors reevaluate the status of the US dollar due to the unpredictability of President Donald Trump's economic policy, Lagarde argued that the time has come for the euro to gain market share, but this requires a revamp of the financial and economic architecture.
Similar Facility Already in Place in the US
The US Federal Reserve has a similar tool – the FIMA Repo Facility – which essentially protects the Treasury bond market, as tensions could otherwise force lenders to sell government bonds at a price below their market value.
Changes Aim to Make the Mechanism More Flexible
"These changes aim to make the mechanism more flexible, wider in geographical scope, and more relevant to global holders of euro-denominated securities," the ECB said in a statement.
Guaranteed Access to the Single Currency
Such guaranteed access to the single currency could naturally increase demand for euro-denominated assets and encourage banks outside the eurozone, which comprises 21 countries, to hold more euros.
