IMF approve record $650 billion to fight Covid-19
- The Board of Governors of the IMF has approved a general allocation of Special Drawing Rights (SDRs) equivalent to US$650 billion, to boost global liquidity.
- This is the largest SDR allocation in the history of the IMF and a boost 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.
Key points:
- Around 70% of the allocation will be given to the G-20 (largest economies), with 3% for low-income nations.
- Overall, 58% of the new SDRs will be distributed to advanced economies, with 42% for developing and emerging economies.
- So out of $650 billion, about $21 billion will be credited to low-income countries and $212 billion to other emerging markets and developing countries, without counting China, according to U.S. Treasury Department calculations.
- Member countries of IMF will receive the fund’s unit of exchange backed by dollars, yen, euros, sterling and yuan, in the proportion of their existing quota shareholdings in the fund.
- The general allocation of SDRs will become effective on August 23, 2021.
Special Drawing Rights (SDRs):
- The SDR is an international reserve asset, created by the International Monetary Fund in 1969 to supplement its member countries’ official reserves.
- The value of the SDR is calculated from a weighted basket of major currencies, including the U.S. dollar, the euro, Japanese yen, Chinese yuan, and British pound.
- SDRs are allocated by the IMF to its member countries and are backed by the full faith and credit of the member countries' governments.
- The SDR serves as the unit of account of the IMF and other international organizations.
- The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.
- SDRs can be exchanged for freely usable currencies.
- To date, a total of SDR 660.7 billion (equivalent to about US$943 billion) have been allocated.
Currencies included in the SDR basket have to meet two criteria:
- export criterion
- freely usable criterion.
- A currency meets the export criterion if its issuer is an IMF member or a monetary union that includes IMF members, and is also one of the top five world exporters.
- For a currency to be determined “freely usable” by the IMF, it has to be widely used to make payments for international transactions and widely traded in the principal exchange markets.
- Freely usable currencies can be used in Fund financial transactions.