“This is a shot in the arm for the world,” the managing director of the International Monetary Fund, Kristalina Georgieva, said in a statement.
CHIEF CRITIC
Last year, the Trump Administration rebuffed calls to increase the IMF’s reserves, arguing that the funds would benefit richer countries the most. Treasury Secretary Janet Yellen reversed the U.S.’ stance, claiming richer countries would have no need for the reserve funds, known as “Special Drawing Rights.”
KEY BACKGROUND
Special Drawing Rights (SDR) are allocated to IMF member countries as assets that can be swapped for hard currency. A country’s allotment is based on the amount of money it contributes, meaning the U.S.—as the biggest contributor—receives the largest share of the pot. The U.S. previously said it would transfer one-fifth of its share to be used by other countries, according to the New York Times.
WHAT TO WATCH FOR
“A sustainable economic recovery cannot be achieved anywhere unless we defeat the pandemic everywhere,” Georgieva warned ahead of the G-20 summit last year. “We can build the impetus for growth, jobs—and address climate change—far more effectively if we work together.”
: The Board of Governors of the IMF has approved a general allocation of Special Drawing Rights (SDRs) equivalent to US$650 billion (about SDR 456 billion) on August 2, 2021, to boost global liquidity. [1]
“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” IMF Managing Director Kristalina Georgieva said.
The general allocation of SDRs will become effective on August 23, 2021. The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.
About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.
“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth”, Ms. Georgieva said.
One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT). Concessional support through the PRGT is currently interest free. The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term.
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