Euro liquidity lines and the international monetary system

Philip R. Lane, Member of the Executive Board of the ECB, discussed the importance of liquidity provision by central banks in his remarks at the CF40-Euro50 luncheon titled “Monetary System Beyond the Dollar”.

The ECB provides liquidity through refinancing operations and asset portfolios, including the main refinancing operations and long-term refinancing operations, as well as asset purchase programmes.

Since ECB refinancing is limited to domestic counterparties, international liquidity lines such as repo and swap lines are essential to mitigate spillovers and support euro liquidity abroad. These lines help prevent upward pressure on euro money market rates and disruptions in securities markets and banking systems, ensuring smooth monetary policy transmission.

Recent global structural shifts have increased economic and financial uncertainty, raising the potential for financial disruptions that could affect euro area markets. International liquidity lines, designed as backstop measures, can reduce financial pressures even if not drawn upon, as evidenced by their effectiveness in easing euro funding pressures.

The ECB has enhanced the Eurosystem repo facility for central banks (EUREP) to improve flexibility and support monetary policy transmission. EUREP offers euro liquidity against high-quality collateral, with standing access for all eligible central banks, unless excluded for reasons such as sanctions or money laundering. The facility will be available for drawdown from the fourth quarter of 2026, with a maximum line size of €50 billion per central bank.

Central banks can use EUREP funds flexibly, with transactions ranging from one day to one week, and the facility aims to boost euro-denominated bond markets, encourage holdings of euro debt securities, and improve market liquidity. It also enhances the integration of euro area bonds, including supranational bonds.

Swap lines complement EUREP by allowing access against local-currency collateral, providing broader liquidity support. Swap lines can be deployed in times of crisis and have stronger signaling effects, helping to reduce the risk of crises abroad escalating and affecting the euro area. They are intended for highly-rated foreign central banks capable of repaying euro debt.

Both liquidity tools have different transmission channels: swap lines work through bank credit channels, providing targeted support to domestic banking systems, while EUREP supports securities markets. Their combined use enhances overall international liquidity support.

From a policy perspective, liquidity lines strengthen the euro’s international role, support euro issuance, and facilitate currency switching, which in turn reinforces ECB’s monetary policy objectives. An increased international use of the euro can influence demand and prices, supporting price stability and reducing external shocks’ impact on euro area inflation and growth.