“Yesterday evening we decided at the International Monetary Fund, the IMF, to increase what are known as special drawing rights by US$650bn. This is historically unprecedented. It is the right, appropriate response to the Covid-19 pandemic. The new SDRs allow the international community to create additional liquidity and thereby foster the stability of the global economy. In particular, it will give a boost to emerging markets and developing economies struggling with the economic fallout from the Covid-19 pandemic.” German Finance Minister Olaf Scholz
The IMF’s Board of Governors approved the allocation of new SDRs for its 190 member states in Washington yesterday. In a decisive step by the international community to jointly tackle the global crisis and improve liquidity, new international reserve assets worth US$650bn (€547bn, or SDR456bn) will be created as of 23 August.
Like the crisis we are facing, the size of the SDR allocation that will become effective on 23 August is unprecedented in the history of the IMF. Germany has been advocating within the IMF for such an SDR allocation since the beginning of the pandemic: it is important that the IMF not only grant loans to the countries that need them but also ensure that they have their own reserves.
Special drawing rights ensure greater financial firepower
Introduced by the IMF in 1969, SDRs are reserve assets that provide a potential claim on freely usable currencies of IMF members. An increased volume of allocated SDRs gives all IMF members additional financial firepower. So far, the IMF has created three new SDR allocations for all member states. The last time this happened was in 2009, when SDRs worth US$250bn were allocated in the wake of the global financial crisis.
Emerging markets and developing countries to benefit
Emerging markets and developing countries, which have been particularly hard hit by the crisis, will be the key beneficiaries. They will receive just over 42% of the new allocations (US$275bn, or €231bn, or SDR193bn). The countries will be able to use this new financial firepower to tackle the crisis and help drive economic recovery. The enhanced transparency is designed to ensure that the countries use the new funds productively to overcome the crisis in a sustainable manner, in consultation with the IMF.
Germany will receive SDRs worth approximately €30bn. They will be made available to the Bundesbank, increasing its international reserves.