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ECB to provide euro liquidity to non-euro area central banks
08-07-2020 16:32
ECB to provide euro liquidity to non-euro area central banks
ECB to provide euro liquidity to non-euro area central banks

Despite serious problems within the union, the EU is ready to support other countries hit by the coronavirus pandemic. Thus, the European Central Bank is planning to provide euros to central banks outside the currency area to help ease any liquidity stress. The new backstop facility is called the Eurosystem repo facility for central banks (EUREP).

“Under EUREP, the Eurosystem will provide euro liquidity to a broad set of central banks outside the euro area against adequate collateral, consisting of euro-denominated marketable debt securities issued by euro area central governments and supranational institutions”, the press release reads. Thus, such loans will be given by means of a purchase agreement (repo). Countries will buy the EU government securities in order to sell them at a higher price. The securities act as collateral, but they temporarily belong to a creditor. Central banks may use the received funds to support their commercial banks if they have difficulties in servicing their obligations in the euro. Besides, the money could be used to provide banks with loans in order to boost economies outside the eurozone. EUREP will be available until the end of June 2021.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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