The ECB has been forced – in part by the COVID-19 crisis – to review its bilateral arrangements with foreign central banks. But the recent changes made by the ECB fall short of the European Commission’s ambitions to boost the international role of the euro. We suggest the ECB should put in place an alternative three-pillar framework to improve the international role of the ECB and cement its pivotal role in the international financial system.

In a new paper released on January 19, the European Commission (EC) reiterated its commitment to strengthen the international role of the euro. This is part of a long-standing plan that has been followed by little action so far. Although the report is broad, it does not mention actions to be taken by the ECB – despite the fact that its role as a global lender of last resort is becoming ever more important to the international financial system.

Since the economic shock of the COVID-19 pandemic, the ECB has overhauled its euro liquidity provision to foreign non-euro central banks. The overhaul has involved reviewing existing arrangements and extending a c cess to euro swap and repo facilities to non-euro area central banks – thereby helping the ECB to stabilize prices and mitigate financial stability risks domestically and abroad.

During the 2008 global financial crisis and its aftermath, the ECB had to make hard choices about its FX swap policy and adopted a very conservative line, precisely when it was enjoying the generous support of the Federal Reserve’s own US dollar liquidity lines.

Indeed, between 2009 and 2011, the ECB refused to extend swap lines to Hungary and Poland when they were in a financial crisis and in need of euro liquidity, or to Latvia when the Swiss National Bank and the Swedish Riksbank respectively rose to the challenge of effectively offering support when the ECB should have also been there to help.