The agreement provides Albania’s central bank with access to this liquidity line with an unchanged maximum borrowable amount of 400 million euros.

“Although this liquidity line has not been used so far, the Bank of Albania considers that this back-up instrument remains supportive to the monetary and financial stability of Albania, in view of heightened uncertainties stemming from Russia’s ongoing war in Ukraine, tensions in Middle East, and their potential risks for the global economy and financial markets,” central bank said in a statement on Friday.

Liquidity lines between central banks are well-established instruments in the central banking policy toolkit, aimed at alleviating tensions in international funding markets. They are agreements, based on predefined terms that enable central banks to receive currencies issued by other central banks in exchange for some form of collateral. Two basic types of financial instruments can be used to establish a liquidity line: swap agreements and repurchase agreements (often referred to as “repo agreements”).

The swap and repo lines have been used increasingly by the ECB and other major central banks since the 2008-9 global financial crises. The ECB is part of a swap line network of standing bilateral arrangements with five other major central banks: the Bank of Canada, the Bank of Japan, the Swiss National Bank, the Bank of England and the Federal Reserve System.

Currency swap agreements between two central banks are arrangements where the borrowing central bank obtains another currency in exchange for its own currency, which is provided as collateral. Both central banks agree to reverse the transaction and repay the borrowed currency, plus a contractually agreed interest rate, on a specified date.

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