ECB’s Cipollone, Lane and Schnabel: Euro Area’s Resilience to Increase With New Framework for Euro Liquidity Lines

29 January 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board members Piero Cipollone, Philip Lane and Isabel Schnabel on Monday said that that the ECB’s new framework for the provision of euro liquidity would contribute to monetary policy transmission and to resilience in the euro area.

In a blog post on the website of the ECB, they said that ‘[p]roviding euro liquidity to non-euro area countries shields the transmission of monetary policy in the euro area and minimises the risks of adverse feedback loops, making the euro area more resilient.’

The changes in the framework, effective since 16 January 2024, reflected the fact that outside conditions could impact monetary policy transmission and that the existence of liquidity lines could avoid the materialisation of financial tensions and the ECB’s need to respond quickly to unfolding events, according to the blog post.

‘The revised framework gives those countries with close economic and financial links to the euro area either standing or fixed-term renewable access to our liquidity lines in normal times’, the authors said.

Liquidity lines granted to non-euro area central banks were confirmed as monetary policy instruments in the new framework, as these lines, among other measures, ‘help to prevent impairments in the monetary policy transmission arising from heightened foreign euro demand or disruptions in cross-border wholesale funding’, according to the authors.

Features established to address risks and the case-by-case approach to requests were kept in the framework, the authors noted.  

‘We are confident that our new framework will live up to the challenges of international liquidity provision in an increasingly volatile world in which central banks need to contribute to stability in line with their mandates’, they said.