ECB Expands Euro Lifeline to Foreign Central Banks Amid Global Challenges

Overview of the ECB's Expanded Eurep Facility

FRANKFURT, Feb 14 (Reuters) - The European Central Bank is opening its euro lifeline to nearly all foreign countries to boost the single currency's global role amid geopolitical turmoil and fraying alliances.

The ECB said on Saturday that potentially "all central banks" outside the euro area would be allowed to borrow euros against collateral denominated in the euro zone's currency.

The move, first reported by Reuters, aims to make it easier for foreign central banks to secure funding in euros at times of financial stress. It is the latest part of Europe’s strategy to win trade and political friends and hold its own against the United States and China.

The initiative fits into ECB President Christine Lagarde’s broader effort to capitalise on what she has called the euro’s "global moment", as unpredictable U.S. economic policy has raised fresh questions about the dollar’s long‑standing dominance.

What is Eurep?

Here are the main features of the ECB's revamped Eurep facility, which will become operational in July.

WHAT IS EUREP?

Created during the pandemic in 2020, the Eurosystem's repo facility for central banks, or Eurep, lets participating central banks 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 crunch in foreign exchange liquidity.

This can be crucial to stabilise the domestic banking sector.

Eligibility for Borrowing

WHO WILL BE ABLE TO BORROW FROM EUREP?

All foreign central banks are welcome to join the expanded facility 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 standing access via a formal request from its governor addressed to the ECB president.

Borrowing Limits and Conditions

HOW MUCH CAN CENTRAL BANKS BORROW?

Under the new terms, central banks can borrow up to 50 billion euros ($59.34 billion) each against collateral such as bonds issued by euro area governments with a good credit rating.

The new cap is far higher than the current maximum. Being an emergency tool, repo lines are not often used, and take-up has been modest in recent months.

WHY HAS THE ECB EXPANDED EUREP?

Impact on the Euro's Global Role

Eurep will give foreign lenders an incentive to lend, trade and invest in euros, safe in the knowledge they can access the ECB's lifeline via their own central bank if needed.

This should boost the euro's role on the international stage, where it is a distant second to the U.S. dollar.

In parallel, the repo line will help insulate the euro area from market stress happening abroad.

HOW WILL EUREP WORK IN PRACTICE?

The repurchase agreements will be extended by some of the 21 national central banks of the Eurosystem that the ECB has not named.

There are no restrictions on how foreign central banks can use the cash. Until now, it was reserved for lending to their domestic banks.

WILL WE KNOW WHEN A CENTRAL BANK TAPS EUREP?

We will not know, as the ECB will stop publishing data about individual countries' use of its repo facility. It will only provide details of overall weekly drawings of euro liquidity across all repo lines. 

($1 = 0.8427 euros)

(Reporting by Francesco CanepaEditing by Rod Nickel)