IMF plans to distribute Special Drawing Rights to those most in need require fundamental reform
New Eurodad briefing argues that the IMF’s Resilience and Sustainability Trust is far from a silver bullet and how greater commitments are needed from governments and central banks, as billions of dollars of SDRs remain unused.
The Fund is set to announce more details about its only concrete plan for rechannelling SDRs, which is called the Resilience and Sustainability Trust (RST), during next week’s Spring Meetings of the IMF and World Bank. But according to today’s briefing, turning the Trust into a useful and appropriate instrument that could support a sustainable and equitable recovery would require substantive changes.
The Fund announced a US$650 billion issuance of SDRs in August 2021 in response to the financial impact of the Covid-19 pandemic and the urgency of the climate crisis. SDRs were feted as a “shot in the arm” to the global economy. Indeed, just a few months after the allocation, at least 80* developing countries were using their SDRs either to purchase foreign currency or for fiscal expenditure. This has been possible because SDR allocations come with no conditionality and create no debt in the recipient country.
But because SDRs are allocated in proportion to IMF quotas, which are unequally distributed, low-income countries only received around US$21 billion. Despite subsequent commitments from the G20 and G7 to come up with plans to channel US$100 billion of their SDRs to developing countries, in practice not a cent has been transferred and around US$400 billion of the newly allocated SDRs remain unused.
Author of the briefing Chiara Mariotti, Senior Policy and Advocacy Officer at the European Network on Debt and Development (Eurodad), said: “Currently, billions of dollars of unused SDRs are sitting idle in central banks. All decision-makers have a moral duty to find ways to put them to use. However, the proposals put forward so far fall short of what is needed. The RST is not aligned with principles for fair SDRs channelling that CSOs put forward last year: chiefly, no conditionality and no additional debt. As it stands, the RST is far from a silver bullet.”
The briefing also goes on to outline alternative ways for channelling SDRs outside the IMF, which are indispensable to ensure that much-needed additional liquidity is made available to developing countries.
Mariotti said: “Ideas for using SDRs for climate finance received a lot of attention at COP26 last year, but the options currently on the table are either not yet technically feasible or are inadequate.
“More must be done to find adequate ways to channel SDRs so they benefit the people that need them most. Everyone must play their part in this including finance ministers, central banks, multilateral development banks and the IMF.”
The briefing recommends a new urgent allocation of US$2.5 trillion following the continuation of the pandemic and the additional global economic uncertainty triggered by the war in Ukraine, and the adoption of a needs-based formula to distribute new SDRs allocation.
Mariotti said: “The unfairness in the way SDRs have been distributed, and the inadequate progress made to ensure they reach those most in need, highlights the desperate need for structural reforms to the global financial architecture.
“The solutions we outline are not without technical challenges, but with political will they are certainly feasible. A greater issuance of SDRs channelled in a fair and equitable way could be a powerful instrument to tackle the global inequality crisis and the impacts of climate change.”
To read the full briefing, titled Special Drawing Rights: Can the IMF’s reserve currency become a transformative financial resource?, click here.
RELATED EVENT AT THE SPRING MEETINGS CIVIL SOCIETY POLICY FORUM:
Title: The IMF’s Sustainability and Resilience Trust: Can an IMF-Managed SDRs Trust Deliver Inclusive & Sustainable Recoveries?
Date & time: Monday 11 April, 10:00-11:30 EDT/ 16:00-17:30 CEST
Join the event: Details here
Media contact: Julia Ravenscroft, Communications Manager, Eurodad: [email protected]/ +44 7958 184 695
Notes to editors:
- For more information go to: Andrés Arauz and Kevin Cashman, ‘Eighty Countries Have Already Used Their Special Drawing Rights, but More of these Resources Are Needed’, CEPR, 26 January 2022, https://cepr.net/eighty-countries-have-already-used-their-special-drawing-rights-but-more-are-needed/