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ECB Sets Up New Backstop for Central Banks Outside Euro Area

ECB Sets Up New Liquidity Facility for Non-Euro Central Banks

The European Central Bank will set up a precautionary facility to provide euros to central banks outside the currency area to help ease any liquidity stress as a result of the coronavirus pandemic.

The funds will be offered against adequate collateral of euro-denominated debt securities from euro-area governments and supranational institutions, the ECB said on Thursday. The new backstop, called EUREP, will be available until June 2021.

The new facility is most likely geared toward countries in Europe with close trade and financial links to the bloc.

The decision follows ECB announcements in April to set up currency swap lines with Croatia and Bulgaria, which are both members of the European Union and are preparing to join the euro. Earlier this month, the Frankfurt-based institution also agreed with National Bank of Romania to arrange a repo line to provide liquidity to help counter the Covid-19 shock.

The ECB said the new facility complements its other precautionary tools and “reflects the importance of the euro in global financial markets.”

It may also encourage those central banks to hold more euro-area government bonds in their reserves than they normally would, to potentially use them to obtain liquidity from the new facility.

Some central banks across emerging markets have seen their reserves dwindle in the wake of the pandemic as households and businesses sought more hard currencies, mainly U.S. dollars, to service foreign debt.

Earlier this year, Turkey tried to initiate talks with other Group of 20 nations to get its central bank included in swap lines like those the U.S. extended to other emerging economies, according to people familiar with the efforts.

©2020 Bloomberg L.P.