As a way of helping struggling economies deal with the fallout from the Covid-19 pandemic, the International Monetary Fund has approved the allocation of IMF Special Drawing Rights (SDRs), a total amount of $650 billion.
The largest-ever distribution of monetary reserves would become effective August 23, according to the IMF board of directors on Monday.
IMF member countries will receive SDRs — the fund’s unit of exchange backed by dollars, euros, yen, sterling and yuan — in proportion with their existing quota shareholdings in the fund as Monday’s approval by all 190 IMF member states was long expected.
According to the IMF Managing Director Kristalina Georgieva in a statement, “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.”
Georgieva added, “It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis. Noting that about $275 billion of the allocation will go to emerging market and low-income countries”.
She also said the IMF will continue to actively engage with members to identify viable options for rich countries that receive SDRs to channel them to poorer countries that need them more. A key option is for wealthier countries to contribute SDRs to the IMF’s existing Poverty Reduction and Growth Trust for low-income countries.
She further stated that the IMF was still considering a new trust for SDRs to facilitate sustainable growth in the medium term, indicating little change from discussions in July.
The IMF’s last SDR distribution came in 2009 when member countries received $250 billion in SDR reserves to help ease a global financial crisis.
SDRs are a versatile asset that can bolster a country’s reserves. And to spend it, countries would first have to exchange them for underlying hard currencies, requiring them to find a willing exchange partner country, or be used to pay for imports, such as vaccines.