Learning to Manage the International Role of the Euro – The ECB’s Lending Arrangements with Non-Eurozone Central Banks in 2008 and 2020

When international financial markets freeze, lending arrangements between central banks are a powerful instrument to restore financial stability. The European Central Bank (ECB) has an unlimited credit line from the US Federal Reserve, which allowed it to stabilise financial markets in 2008 and to borrow more than $130bn in spring 2020. Yet when the ECB was asked to lend euro reserves to other central banks, its course has been less steady. Both in 2008 and 2020, the ECB granted some non-Eurozone central banks easily accessible swap lines and required others to post collateral from their foreign reserves under repo agreements. The objective of this paper is to understand why the ECB applied different terms to central bank lending agreements in 2008 and 2020. Based on policy documents and insider interviews I argue that the ECB’s initial focus on its own balance sheet has given way to a more proactive management of the international role of the euro. In 2008, the ECB had little experience with international financial crises and decided the credit terms largely based on perceived sovereign credit risk and a disciplinarian view of EMU accession. In 2020, by contrast, aspiring EMU members received better lending conditions than EMU laggards and the ECB has even opened repo facilities for central banks from outside the EU. The ECB’s narrow focus on counterparty risk has thus given way to a more institutional logic. Based on these findings I argue that the ECB has developed its criteria for central bank lending and grown into its role as an issuer of an international currency. This has implications for political economy scholarship on the ECB and international central bank cooperation more broadly.