The ECB is working with the Bank of England to reduce the fallout of a Brexit vote.
As per officials with the knowledge of the matter at hand, the European Central Bank along with the Bank of England, would publicly pledge to backstop financial markets in the event if Britain were to leave the European Union.
These preparations only go to illustrate the heightened state of art alert that officials are in ahead of the June 23 referendum, which will not only decide and shape Britain’s future, but also that of the EU. Its repercussions will be felt throughout the world. Already the pound and the euro had lost value on fears that a Brexit vote could tip the EU into a recessionary trend.
If this were to happen, the ECB will make such an announcement on June 24 with the stated aim of underpinning investor confidence across the EU and the world, with worldwide markets in jitters, as they await the outcome of this referendum.
“There will be a statement to do whatever it takes to maintain adequate market liquidity,” said one senior central bank official speaking on the condition of anonymity.
If Brexit were to happen, the ECB’s pledge would effectively mean the opening of swap lines with the Bank of England, which would allow the conversion of currencies smoothly and effectively, without restricting any flow of funds between the banks of either country.
Last month, the Bank of England had stated that in this time of “heightened uncertainty” banks may find it hard to tap their usual sources of foreign currencies which make its day-to-day operations happen.
Incidentally, the ECB had a similar arrangement in place with the U.S. Federal Reserve after the September 11 attack and during the 2008 financial crisis.
Both, the ECB and the Bank of England have declined comment.
Increasing market liquidity in case of a Brexit is key, since it would ease the pressure on banks and significantly reduce the potential for panic in financial markets, as they digest the result of the referendum.