October 07, 2021
CEPR Senior Research Fellow Andrés Arauz participated in an event on October 4th as part of the IMF Annual Meetings, 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 Third World Network.
The following is a transcript of his presentation:
We have to recall the origin, the genesis of SDRs. SDRs have a history, in the middle of crisis and transformation of the international monetary system. They were created to be similar to gold: a reserve asset, but still an asset that would benefit different countries in their efforts with what was known at the time as the “development link.”
There was a lot of discussion between the IMF and UNCTAD on how to issue SDRs in such a way so that it would not only benefit mostly the rich countries, but would also spread around to benefit the poorer countries, the developing countries, and to obviously pursue development-oriented objectives such as to currently enforce sustainable development goals.
So this development link has been around for a long time, and I think it’s important for us to recover it from the archives and put it again to the center. I think Nadia has been very explicit about this.
So, SDRs are reserve assets, but even though they are reserve assets, I think sometimes we forget that they are still assets. And they are still assets that, according to the Articles of Agreement of the International Monetary Fund, belong and are allocated to member countries. The Articles of Agreement do not establish or define that they should be allocated to central banks, but rather to member countries, and it is up to the institutional arrangement of each member country to decide how it’s allocated within the domestic books.
Now, this is not a marginal discussion. I have heard different positions regarding this, the IMF guidance note that was issued for IMF staff but was understood by many countries to be a guidance for countries. For example, that SDRs should be allocated to the central bank’s books, and then maybe there can be some on-lending to governments, and then maybe there has to be a legal solution regarding the central bank financing taboo. On the other hand, the leadership of IMF has been much clearer in the sense that we should find direct fiscal use for these SDRs.
Like I said, this is not a marginal discussion. This is not something that should be completely left alone, to each individual countries and their domestic institutions. There should be wider discussion around the world, and especially at the IMF to see how we can find this “last mile.” The managing director just said, that it was also thanks to civil society that had a very active role in promoting the issuance and allocations of SDRs, and we know that it was a tough job. We know what happened in 2020 and how there were several obstacles that had to be overcome so that this year we now have the SDRs. Unfortunately, a year and a half later after the pandemic was declared as such. But now we have a problem of what we call “the last mile.” We have the SDRs that have been issued, allocated, distributed around the world to the different countries, but we’re not seeing them being used at the urgency and the speed that we expected, because we need to resolve the last mile issue, and that last mile issue is the fiscal use of the SDRs.
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 the health issues, to buy vaccines, to resolve the economic recovery with inclusion, so we need to use them. It is not a time for central bank dogma. And this is not only useful for developing countries that need to put the SDRs to good use in a budget sense, but also so that rich countries can have the fiscal framework to donate or use them in grant line channeling for poorer countries and developing countries.
This is absolutely important. If we do not resolve the fiscal dimension of SDRs, it will be continuously more difficult to have SDRs be rechanneled with a grant-like dimension, and will be continuously taken to the debt sphere, which is not the preferable option in the context of an emergency around the world, such as the pandemic. We see that the size of measures that the rich countries have applied have been huge and abundant. We know this because of international monetary hierarchy that give them a higher possibility to issue more money and spread it around in the context of the pandemic. But that is why we need to overcome the fiscal dimension in the global discussion.
That’s why I am very thankful to LATINDADD that took the decision to issue the handbook for fiscal use of SDRs. I think it has been a key element in having the discussion be broadened, but we need to take up this discussion at a higher level, and I thank you for this opportunity.
Finally, I think fiscal use is absolutely crucial, and while the channeling is being worked on, while the discussions of whether it’s a grant, whether we have donations, or whether it’s a long-term loan, or whether it goes through several trusts and the Resiliency and Sustainability Trust is adopted, even though we’re in an emergency and there’s urgency that has to be faced, I think we have to continue to pressure for a new allocation of Special Drawing Rights. I called for 3 trillion SDRs the day the pandemic was declared on March 12, foreseeing and foreshadowing all the major issuance of euros, dollars, yens, and pounds that happened since then, and we don’t have an equivalent instrument for the developing countries.
We have seen the US Congress putting its weight as well, with approvals already in the House of Representatives for an issuance — as you know, the US has an important say in the matter because of the SDR Act of 1969 — up to $2.2 trillion worth of new SDRs. So I think we’re already on this second wave; we should not stop working on that either, and this is absolutely important in terms of the civil society support that we can get, but also key leaders around the world, such as the leaders of the G20, but also important policymakers within the IMF staff. So I’d like to end this by thanking all of you again, thanking the IMF leadership in this, especially Managing Director Kristalina Georgieva. This is a very important decision that she has taken, and I think she will find the support of civil society, because this 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. Thank you very much.