The Center for Economic and Policy Research (CEPR) released a fact-check Monday of Republican senators’ claims regarding Special Drawing Rights (SDRs), reserve assets of the International Monetary Fund (IMF) designed for use in times of economic downturns or crises. CEPR shows that a recent letter from Republican Senators Pat Toomey (R-PA), Jim Risch (R-ID), John Kennedy (R-LA), and Bill Hagerty (R-TN) to Treasury Secretary Janet Yellen, strongly opposing a new issuance of SDRs, is filled with misconceptions and inaccurate information about SDRs.
“Despite the fact that SDRs were successfully issued and used during the world recession of 2009, they are still not a well-known policy tool among US legislators. This can lead to misconceptions regarding the nature of SDRs, how they are used, and what countries they can help,” the CEPR fact-check states.
Despite support for a major allocation of SDRs by most IMF member countries, the Biden administration, the majority of the US House of Representatives, IMF Managing Director Kristalina Georgieva, numerous former heads of state and finance ministers, and by many economists and bankers, some Republicans in the House and Senate have steadfastly opposed a new SDRs issuance to provide COVID relief to developing countries. The arguments they have made against SDRs often do not reflect the reality of how SDRs work, what they would cost US taxpayers (nothing), or which countries they would benefit.
The Trump administration did not support a new issuance of SDRs when proposed by the IMF Managing Director in March 2020, and because the United States holds veto power over votes related to SDR allocations, the IMF was unable to issue SDRs despite nearly unanimous support from member countries and even though legislation passed the US House of Representatives twice last year supporting an allocation of trillions in SDRs. Under the Biden administration, the Treasury Department has reversed course and announced that it will support an issuance of SDRs worth $650 billion.
As the CEPR fact-check explains, SDRs are reserve assets issued by the IMF to its member countries that have a value based on a basket of five major currencies. Governments can exchange SDRs for hard currencies, most often the dollar or euro. Economists and policymakers around the world support allocating SDRs during the pandemic as a simple and rapid way to help countries in need, and to stabilize the world economy. An IMF issuance of SDRs does not cost the United States — or any IMF member country — anything. SDRs are not loans that have to be repaid, and therefore do not affect the sustainability of member countries’ public debt, nor do they have conditionalities attached to them.
The IMF last enacted a major allocation of SDRs in 2009 in response to the world recession. At the time, the allocation received bipartisan support in Congress, and less than 2 percent of the SDRs issued ended up being exchanged for hard currency.
(See also this release on support for a major allocation of SDRs from world leaders and members of the US Congress.)