Global Market: ECB sees Euro liquidity support boosting global currency role

The European Central Bank (ECB) can strengthen the euro’s international role and expand the global reach of its monetary policy by providing liquidity support to foreign countries, ECB Chief Economist Philip Lane said on Wednesday, according to Reuters.

Demand for the ECB’s recently expanded euro liquidity facilities has been strong, with more than 30 central banks expressing interest, Lane said at a closed-door event in Shanghai titled “Monetary System Beyond the Dollar”. The event was part of the annual Bund summit.

Read more: Global Market: China's yuan hits four-year high on export strength, weak dollar


Lane said liquidity arrangements could boost confidence in the euro, reduce currency-related risks and encourage its wider use in international transactions.

His comments come as policymakers reassess the long-term dominance of the US dollar amid concerns over the economic policies of US President Donald Trump. The debate has renewed interest in the potential for other currencies, including the euro, to play a greater role in the global financial system, Reuters reported.

Read more: Global Market: Japanese government bond yields fall as safe-haven demand returns

Greater international use of the euro could also strengthen the ECB’s ability to achieve its inflation target by extending the influence of euro area monetary policy beyond the currency bloc, Lane said.

He highlighted the ECB’s EUREP facility, which enables foreign central banks to obtain euros against collateral denominated in the single currency. The facility could support euro area bond markets by encouraging greater purchases of euro-denominated assets by official reserve managers, he said.

ECB President Christine Lagarde recently said the central bank was reviewing its network of currency swap lines. These arrangements allow major central banks, including the US Federal Reserve and the People’s Bank of China, to exchange their currencies for euros, Reuters reported.

Lane said swap lines could encourage greater borrowing in euros but stressed that access should be limited to central banks in economies with close financial ties to the euro area and a clear ability to repay their euro liabilities.

The ECB’s efforts to expand access to euro liquidity facilities reflect its broader ambition to increase the currency’s international appeal while maintaining safeguards against financial risks. Greater global use of the euro could potentially strengthen European financial markets and enhance the transmission of the central bank’s monetary policy, Reuters reported.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)