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TWN Info Service on Finance and Development (Feb21/01)
8 February 2021
Third World Network


Dear friends and colleagues,

We are pleased to share with you a new TWN Briefing Paper by Bhumika Muchhala and Alexander Kozul-Wright on the urgent need for the issuance of Special Drawing Rights (SDRs), a tool of the International Monetary Fund (IMF), to provide fiscal assistance to developing and least developed countries to tackle COVID-19 and its associated socio-economic crises.

SDRs are one of the most accessible and low-cost sources of liquidity; it is a reserve currency that can be exchanged for cash. Created by the IMF in 1969 to support member countries’ foreign exchange reserves, SDRs are based on a basket of five currencies (the USD, the Euro, the Chinese renminbi, the Japanese yen and the British pound). Unlike other IMF instruments, SDRs are a non-conditional, non-debt creating resource. It is, in effect, a liquidity booster not dis-similar to quantitative easing.

However there are equity issues in the allocation of SDRs because countries receive SDRs according to their IMF quotas, or financial contribution shares, rather than fiscal need. This creates an inequity by which almost 60% of SDRs go to wealthy countries. On the flipside, countries with the greatest need receive the least.

While there is a new momentum with the Biden Administration possibly supporting the issuance of SDRs, many challenges exist that require a global solution that is equitable and does not create another round of debt for the affected countries, as set out by the authors of the Paper.

The Briefing Paper is  available here.

With best wishes,
Third World Network

 


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