The IMF Board of Governors approved a general allocation of Special Drawing Rights (SDRs) on August 7 equal to US$250B to provide liquidity to the global economic system by supplementing member countries’ foreign exchange reserves.
According to a press release the International Monetary Fund (IMF) Executive Board backed the general allocation on July 17 following the commitment made by G20 leaders at their April summit to boost global liquidity and welcomed by the International Monetary and Financial Committee.
The equivalent of nearly US$100 billion of the general allocation will go to emerging markets and developing countries, of which low-income countries will receive over US$18 billion.
The general SDR allocation will be made next Friday to IMF members that are participants in the SDR Department (currently all 186 members) in proportion to their existing quotas in the Fund which are based broadly on their relative size in the global economy. The allocation will provide each participating country with SDRs in amounts equivalent to about 74 per cent of its quota, and could increase Fund members’ total allocations to an amount equivalent to about US$283 billion from about US$33 billion (SDR 21.4 billion).
Separately, the Fourth Amendment to the IMF Articles of agreement providing for a special one-time allocation of SDRs has now entered into force. The special allocation will be made to IMF members on September 9, 30 days after the effective date of the fourth Amendment and will raise the ratios of members’ cumulative SDR allocations to quota using a common benchmark ratio as described in the Amendment. The total of SDRs created under the special allotment would amount to SDR 21.5 billion or about US$33 billion.
According to the release the special share will make the allocation of SDRs more equitable and correct for the fact that countries that joined the Fund after 1981 – more than one fifth of the current IMF membership – had never received an SDR allocation. The Fourth Amendment, which was proposed in September 1997, required approval by three fifths of the IMF membership with 85 per cent of the total voting power. This threshold has been reached following the recent approval by the US.
Members’ holdings of newly allocated SDRs will count as of the date of each of the general and special allocations, toward their reserve assets. Some members may choose to sell part or all of their allocations to other members in exchange for hard currency – for example to meet balance of payments needs – while others may choose to buy more SDRs as a means of reallocating their reserves.
The special and general allotments will bring Fund members cumulative total of SDR allocation to SDR 204 billion or about US$316 billion. The general SDR allocation is a key example of a cooperative multilateral response to the global crisis, offering significant support to the Fund’s members in this challenging period.
