By José Antonio Ocampo, Professor at Columbia University and former UN Under-Secretary-General for Economic and Social Affairs and Finance Minister of Colombia
The decision of the IMF Board last Friday to approve the allocation of $650 billion in Special Drawing Rights (SDRs) is excellent news for the world economy. This proposal had been on the table since the early phase of the COVID-19 crisis. It was vetoed by the United States under the Trump administration, but endorsed by the Biden administration, who proposed the magnitude of the agreed allocation.
The decision follows that adopted during the Global Financial crisis in 2009 to allocate $250 billion, the advantage of which was that it was timelier. There were several proposals made early during the current crisis, including the one we made with Kevin Gallagher and Ulrich Volz in March of last year, and that by Christopher G. Collins and Edwin M. Truman in April, who emphasised the importance it had for increasing the foreign-exchange reserves of low-income countries.
There were later proposals, several of a political character, to issue as much as one or two trillion dollars. They went much beyond the total IMF capital (quotas), which implied that they would have required approval by the US Congress, which would have delayed the decision. The $650 billion meets the criteria of being less than IMF quotas.
The SDRs are the global monetary asset that the IMF issues. They are part of the foreign exchange reserves of countries. Their basic limitation is that they can only be used by central banks or by specific international institutions that are allowed to hold them. Nonetheless, they can be sold to other central banks, which makes them liquid. The country that uses them has to pay an interest to the IMF SDR accounts.Continue reading