Central bank liquidity lines

By lending euro to non-euro area central banks, liquidity lines can help to address possible shortages of euro funding in those countries in the event of market stress. This helps mitigate the risk of financial tensions abroad spilling over into the euro area. Specifically, liquidity lines help contain upward pressures on euro money market rates that can arise when banks abroad struggle to obtain euro.

They also discourage foreign investors from resorting to fire sales of euro-denominated securities during periods of stress, thereby further stabilising markets. In this way they promote financial stability, which is a prerequisite for price stability.

As a side effect, they also strengthen the role of the euro in international financial markets, which in turn further enhances the effectiveness of ECB monetary policy transmission. 

By borrowing foreign currency from non-euro area central banks, the ECB can provide foreign currency to domestic counterparts in periods of stress, when market funding mechanisms dry up. This supports euro area financial stability, which is a precondition for price stability.