Special Drawing Rights: The Beginning of a Paradigm Change?

October 29, 2021

On August 23, the International Monetary Fund (IMF) released a historic $650 billion Special Drawing Rights (SDR) allocation to its member countries — an amount more than two and a half times the amount of the last SDR disbursement in 2009, and only the sixth allocation ever. Special Drawing Rights are an international reserve asset created by the IMF, and support member countries by providing them with liquidity. They can also be used to bolster a recipient country’s international reserves. 

To discuss how countries can maximize the impact of the SDRs, on October 4 CEPR Senior Research Fellow Andrés Arauz participated in a panel alongside Nadia Daar of Oxfam International, George Gray Molina of the United Nations Development Program (UNDP), Patricia Miranda of the Latin American Network for Economic and Social Justice (LATINDADD), and Ceyla Pazarbasioglu of the IMF. Izabella Kamiska of the Financial Times moderated the discussion. The virtual event was part of the IMF Annual Meetings Civil Society Policy Forum and was sponsored by CEPR, ActionAid, Afrodad, the Bretton Woods Project, the Catholic Agency for Overseas Development, Eurodad, Global Policy Forum, Global Call to Action Against Poverty, Jubilee Debt Campaign, Latindadd, Oxfam International, Social Justice in Global Development, Society for International Development, and the Third World Network. 

IMF Managing Director Kristalina Georgieva offered opening remarks, and thanked civil society organizations, saying that the campaign for the most recent SDR allocation would “not have succeeded without you.” 

Much of the discussion focused on the need for wealthy countries to reallocate, or channel, significant portions of their SDR allotments to low- and middle-income countries. Nadia Daar summarized the issue in her remarks: “Because of the IMF’s quota system, wealthy countries received the lion’s share of August’s SDR allocation. Approximately $400 out of the $650 billion went to rich countries, while those who need it most — middle- and low-income countries — received the least: $230 billion and $21 billion, respectively, by our calculations. Bangladesh has twice the population of Germany, for example, but Germany received 25 times more SDRs than Bangladesh.” 

Few wealthy countries have so far committed to channeling their SDRs. France has said it would channel 20 percent of its most recent allocation to African countries, while calling on the G20 countries to commit up to $100 billion. The Biden administration has indicated that it hopes to channel some portion of its SDRs, but it will need congressional approval to do so. 

The panel also focused on the need for SDRs to be channeled in a way that allows countries to maximize their impact to ensure an “inclusive recovery from the health crisis and its consequences,” as Patricia Miranda said. The IMF and G20 are currently discussing two vehicles for SDR channeling — the Poverty Reduction Growth Trust (PRGT) and the still-to-be-created Resilience and Sustainability Trust (RST) — both of which would appear to fall short of the demands outlined in an open letter signed by 280 organizations and academics (including CEPR) that was published last month. The letter calls for channeling options that provide debt-free financing and refrain from imposing conditionalities — which many believe would likely include economically harmful prescriptions such as public sector cuts and other austerity measures. In addition, the letter asks that rechanneled SDRs be made available to low- and middle-income countries alike (and in addition to existing financing commitments), and be targeted toward combatting the pandemic through budget support for health care and other social spending. 

Andrés Arauz focused his remarks on a crucial aspect of SDRs: their fiscal application. SDRs, he argues, belong to governments, not central banks: “[SDRs are] assets that, according to the Articles of Agreement of the International Monetary Fund, belong and are allocated to member countries .… [T]he leadership of the IMF has been clear … that we should find direct fiscal use for these SDRs.” 

Arauz continued: “The fiscal use of the SDRs would allow SDRs to be included in the budget of governments, not just the balance sheets of central banks. We do not want to stash those SDRs away, or hide them out of sight. We need them to be converted into true policy action on the ground to help with health issues, to buy vaccines, to resolve the economic recovery with inclusion … It is not a time for central bank dogma.”

Arauz also called for an additional SDR allocation. The US House of Representatives has passed legislation calling for up to $2.2 trillion worth of SDRs this year — after passing similar approvals in the House twice last year — but Republicans are blocking similar legislation in the Senate. Nobel laureate economist Joseph Stigltiz has gone even further, calling for significant SDR allocations to occur annually, during a panel on IMF surcharges hosted by CEPR earlier this month. 

This SDR issuance, Arauz concluded, “is definitely the beginning of what could become a paradigm change, especially if we start to link this with development, with the Sustainable Development Goals, of course, with the urgency to fight climate change, and the recovery around the pandemic.” 

A video recording of the event can be found here. A full transcript of Arauz’s remarks can be found here.

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