Volkswacht Bodensee - ECB to extend euro backstop to boost currency's global role

The backstop mechanism, which provides funding at times of extreme financial stress, is currently only available to a handful of central banks.

The new facility will extend this to central banks worldwide, as long as they fulfil certain criteria.

"The ECB needs to be prepared for a more volatile environment," ECB chief Christine Lagarde said in a speech at the Munich Security Conference.

"As industrial policy becomes more assertive, geopolitical tensions rise and supply chains are disrupted, financial market stress is likely to become more frequent."

The ECB wants to prevent these tensions from leading to forced sales of euro-denominated securities, so it plans to guarantee central banks that euro liquidity will be available when needed, she said.

"The availability of a lender of last resort for central banks worldwide boosts confidence to invest, borrow and trade in euros, knowing that access will be there during market disruptions," she said.

With the dollar having steadily lost value since US President Donald Trump returned to office, Lagarde has previously talked up the possibility of boosting the prominence of the euro.

The new system will be introduced from the third quarter of 2026.

The facility, known as "repo lines", was introduced on a temporary basis in 2020 during the coronavirus pandemic.

It was used again after Russia's invasion of Ukraine in 2022 to provide euro liquidity to a few central banks outside the eurozone.

C.Koch--VB