By Cyprian Ntiamba Obi Ntui in Yaounde
The International Monetary Fund, IMF has earmarked the sum of 650 billion United States dollars in Special Drawing Rights, SDR to help countries across the globe mitigate COVID-19 shocks.
According to the Managing Director of the IMF, Kristalina Georgieva, she and other Executive Directors met in Washington, DC on March 23, to discuss a new SDR of US$650 billion to boost reserves and help global recovery from COVID-19.
In the statement the Managing Director issued after their discussions, she said she is very encouraged by initial discussions on a possible SDR allocation of US$650 billion. By addressing the long-term global need for reserve assets, she added, a new SDR allocation would benefit all IMF member countries and support the global recovery from the COVID-19 crisis. It would also be a powerful signal of the IMF membership’s determination to do everything possible to overcome the worst recession since the Great Depression.
“To this end, Executive Directors conveyed broad support among Fund members for IMF staff to formulate a proposal for a new SDR allocation equivalent to US$650 billion to provide additional liquidity to the global economic system by supplementing the reserve assets of the Fund’s 190 member countries.
“I intend to present by June a formal proposal to the Executive Board to consider a new allocation of US$650 billion, based on an assessment of IMF member countries’ long-term global reserve needs, and consistent with the Articles of Agreement and the IMF’s mandate. IMF staff will develop new measures to enhance transparency and accountability in the use of SDRs while preserving the reserve asset characteristic of the SDR. In parallel, staff would also explore options for members with strong financial positions to reallocate SDRs to support vulnerable and low-income countries.
“If approved, a new allocation of SDRs would add a substantial, direct liquidity boost to countries, without adding to debt burdens. It would also free up badly needed resources for member countries to help fight the pandemic, including to support vaccination programmess and other urgent measures. And it would complement the range of tools deployed by the IMF to support our membership in this time of crisis,” the IMF boss concluded.
Under the IMF’s Articles of Agreement, the Managing Director may make a proposal of an SDR allocation if the Managing Director is satisfied that the allocation would help meet a long-term global need to supplement existing reserve assets in a manner that will avoid stagnation and deflation as well as excess demand and inflation, and there is broad support among IMF members for the allocation. Once the Managing Director’s proposal is concurred in by the Executive Board, it would be submitted to the Board of Governors whose decision approving an SDR allocation would require support by members representing 85 percent majority of the total voting power. SDR allocations are distributed across the IMF membership in proportion to IMF quota shares.
What is SDR
The SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries.
The SDR is not a currency. It is a potential claim on the freely usable currencies of IMF members. As such, SDRs can provide a country with liquidity.
A basket of currencies defines the SDR: the US dollar, Euro, Chinese Yuan, Japanese Yen, and the British Pound.
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (equivalent to about US$293 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.
How many SDRs have been allocated so far?
The Fund has allocated a total of SDR 204.2 billion (equivalent to about US$318 billion), including three general allocations and a one-time special allocation. Specifically:
SDR 9.3 billion was allocated in yearly installments in 1970–72.
SDR 12.1 billion was allocated in yearly installments in 1979–81.
SDR 161.2 billion was allocated on August 28, 2009, by far the biggest allocation to date.
A special one-time allocation of SDR 21.5 billion took effect on September 9, 2009 to correct for the fact that members that had joined the IMF after 1981 had never received an allocation.
In addition, new members to the Fund receive an SDR allocation upon their participation in the SDR Department.