Building a Better SDR
As the International Monetary Fund prepares for its next large-scale issue of special drawing rights, its reserve asset, the time is ripe for reform. At the top of the list of priorities should be eliminating dual IMF accounting and implementing a more equitable system for determining SDR allocations.
NEW YORK – The G20 has agreed on a new allocation of special drawing rights, the International Monetary Fund’s reserve asset. This is great news: I have long considered the SDR one of the most promising, yet underused instruments of international economic cooperation. But if the world is to make the most of this half-century-old tool, reform is needed.
Many economists, including some colleagues and I, have been recommending a major new SDR allocation for a year now. The G20’s failure to heed that recommendation exemplifies the inadequacy of international financial cooperation during the COVID-19 pandemic, especially when compared to the aftermath of the 2008 global financial crisis.
Now, however, the United States recognizes the need for cooperation: it was Janet Yellen’s predecessor as US Treasury Secretary, Steven Mnuchin, who opposed – and effectively blocked – the SDR allocation last year. IMF Managing Director Kristalina Georgieva also deserves credit for championing SDRs as a powerful tool for supporting the COVID-19 response.