ECB and Croatian National Bank Set up Swap Line to Provide Euro Liquidity

National Bank of Croatia (Shutterstock)

The European Central Bank (ECB) and Croatian National Bank have agreed to set up a precautionary currency agreement (swap line) to provide euro liquidity to Croatian financial institutions in order to address possible market dysfunction.

Under the new swap line, Croatian National Bank will be able borrow up to €2 billion from the ECB in exchange for Croatian kuna. 

The maximum maturity for each drawing will be three months. 

The swap line will remain in place until 31 December 2020, unless it is extended.

The HNB said in a press release that the precautionary currency swap line would be activated if needed, Total Croatia News reported .

"The currency swap line allows for the exchange of the kuna for the euro in the amount of EUR 2bn," the national bank said.

This swap line gives the HNB "the space to provide additional euro liquidity to Croatian financial institutions, should they need it, without using its own international reserves."

The Croatian central bank said that it "will notify the ECB of the use of euro liquidity acquired through the currency swap line. The currency swap line will remain in place until 31 December 2020, and can be extended if necessary."

In March, the HNB conducted five interventions on the foreign exchange market to maintain the stability of the exchange rate of the kuna, selling a total of € 2.25 billion.

It has also taken some other measures to mitigate the economic impact of the coronavirus pandemic.