The announcement last Friday that the International Monetary Fund (IMF) executive board approved an allocation of $650 billion worth of Special Drawing Rights (SDRs) is a “much-needed step in the right direction,” Center for Economic and Policy Research (CEPR) Co-Director Mark Weisbrot said, “but more will be needed, and IMF member countries should aim at ultimately allocating trillions in SDRs, that most of the US Congress has supported, to meet the scale of the challenges that countries continue to face as a result of the pandemic.” With expected approval by the IMF’s board of governors, these special reserve assets could be distributed to countries around the world by the end of August.
“This is a historic victory,” Weisbrot said. “With this issuance and distribution of reserve assets, the IMF is playing an important role that many of its founders envisioned when it was founded 77 years ago, helping to stabilize the world economy in the face of serious threats.”
The $650 billion allocation is much less than the $2.8 trillion worth of SDRs included in legislation that was passed last year by the US House of Representatives. But the 40 percent of these SDRs that will go to low- and middle-income countries will save many lives, as they seek to avoid economic crises prompted by the pandemic, and fight the spread of new COVID variants.
Legislation for a much larger issuance of SDRs has been introduced this year in both the US House and Senate.
More than 110 organizations, representing tens of millions of Americans, have supported a new allocation of SDRs at the IMF since early 2020, and earlier this year, over 200 civil society organizations from around the world — including Oxfam, Jubilee USA, the International Trade Union Confederation, and the US Conference of Catholic Bishops — called for an issuance of $3 trillion worth of SDRs. It should be noted that, since countries receive SDR allocations that are proportional to their quota shares at the IMF, a $3 trillion SDR allocation would result in developing countries receiving approximately $1.2 trillion worth of these assets.
“This is something that will have to be reformed at the IMF, since about 60 percent of the SDRs currently go to high-income countries, who do not need them, and under IMF rules, will not use them,” Weisbrot said. “However, there is currently no cost or waste of resources involved in that 60 percent of the issuance, as it merely creates an accounting entry for the high-income countries that is not converted to currency.”
There are currently discussions at the IMF to reallocate some of the SDRs received by high-income countries to low- and middle-income countries. However, Weisbrot emphasized that such reallocation, if it happens, should not pile more debt on developing countries, and should not include conditions attached to any lending. In the past and present, he noted, conditions attached to IMF lending have sometimes caused economic harm to borrowing countries.
SDRs are assets that are used to supplement the international reserves of countries, thereby helping to stabilize their finances and avoid balance of payments crises, as well as other financial crises that can cause severe economic damage, increases in extreme poverty, and loss of life. They can also be exchanged for hard currency by countries in need and used to import essential goods, including vaccines and medical equipment. The Congressional Budget Office has confirmed that SDR allocations are completely cost-free for the US government.