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This SDR Allocation Must Be Different

When the International Monetary Fund announced last month a new $650 billion allocation of special drawing rights, the hope was that high-income countries would transfer their SDRs to developing countries in need. With the Fund’s annual meetings coming in October, it’s time for all parties to step up.

BERKELEY – In August, the International Monetary Fund announced, to much fanfare, that its members had reached a historic agreement to issue $650 billion of special drawing rights (SDRs, the Fund’s unit of account) to meet the COVID-19 emergency. SDRs are bookkeeping claims that governments, through the IMF’s good offices, can convert into dollars and other hard currencies to pay for essential imports, such as vaccines. And $650 billion isn’t peanuts: it’s nearly 1% of global GDP. This could make a big difference for poor countries impacted by the virus.

The problem is that SDRs are allocated according to countries’ quotas, or automatic borrowing rights, within the IMF, and the quota formula depends heavily on countries’ aggregate GDP. As a result, barely 3% of the $650 billion total went to low-income countries, and only 30% went to middle-income emerging markets. Nearly 60% was allocated to high-income countries with no shortage of foreign-currency reserves and no difficulty borrowing to finance budget deficits. More than 17% went to the United States, which can print dollars at will.

The hope was that governments and the IMF would find a way for high-income countries to transfer their SDRs to developing countries in need. So far, there’s little sign of progress in this direction. With the Fund’s annual meetings coming in October, it’s time for the institution – and its members – to step up.

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