The euro hovered near a one-month low on Wednesday and suffered a sharp decline this week as investors calculated the cost of the U.S.-EU trade deal.
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The European Central Bank on Saturday announced plans to expand access to the euro’s liquidity backstop and make it available and permanent around the world, with the aim of strengthening the single currency’s international role.
Access to such repo lines, a key source of funding in times of market stress, is largely limited to a handful of Eastern European countries, but ECB President Christine Lagarde has long seen them as a tool to increase the euro’s global reach.
“The ECB needs to prepare for a more unstable environment,” Lagarde said at the Munich Security Conference, her first statement as ECB chief.
“We must avoid a situation where that stress could lead to a fire sale of euro-denominated securities in global funding markets and impede the transmission of monetary policy,” he said in announcing the new system.
The facility will be available to all central banks worldwide and will be available from the third quarter of 2026, unless excluded for reputational reasons such as money laundering, terrorist financing or international sanctions, the ECB said.
“This system also strengthens the role of the euro,” Lagarde said. “The availability of a lender of last resort for central banks around the world increases confidence in investing, borrowing and trading in the euro, knowing they will have access in times of market turmoil.”
Repo lines, used when banks are unable to raise funds on the market, allow lenders to borrow euros from the ECB based on high-quality collateral and repay them with interest at maturity.
Unlike the previous line, which had to be extended from time to time, the new facility will provide permanent access of up to 50 billion euros.
With investors reevaluating the dollar’s standing due to the unpredictable nature of U.S. President Donald Trump’s economic policies, Lagarde argued that now was the time for the euro to gain market share, which required a shake-up of the financial and economic structure.
The U.S. Federal Reserve maintains a similar tool called the FIMA Repo Facility. This essentially protects the government bond market since stress can force lenders to sell bonds below market value.
“These changes aim to make the regime more flexible, have a broader geographical scope and be more relevant to euro security holders worldwide,” the ECB said in a statement.
This guaranteed access to the euro would naturally increase demand for euro-denominated assets, potentially leading the 21 non-euro area banks to buy assets from the euro area.
