What are SDRs and how can they drive the global recovery from COVID-19?
This source of funding can help countries recover from the impacts of the COVID-19 pandemic.
Why the citizens of the world should care
The last time new Special Drawing Rights (SDRs) were issued was during the 2008-2009 financial crisis, unlocking hundreds of billions of dollars to help countries around the world in times of need.
Today, more than a decade later, world leaders are once again discuss this funding source – this time in the hope that it will help countries recover from the global economic recession caused by the COVID-19 pandemic.
Below, we outline what SDRs are, how they can boost the global economy, and whose support is needed to tap into this crucial funding, which could be used for medical supplies, vaccines, food, and relief. additional debt to avoid low income. countries to sink deeper into poverty.
What are SDRs and how can they help the recovery from COVID-19?
Created by the International Monetary Fund (IMF) in 1969, the SDR is a reserve asset that can be exchanged between countries in exchange for cash, or cash.
Whenever the IMF decides to issue a new SDR allocation, the organization essentially acts as an international central bank.
The IMF distributes these reserve assets to its 190 member countries commensurate with their share in the IMF and their relative economic position in the global economy. Thus, the richer countries receive more SDRs, while the poorest countries receive less.
Countries can then buy or sell SDRs according to their needs. For example, a country that is economically suffering and needs more liquidity to make payments may sell part of its SDRs in exchange for cash, especially in US dollars or euros. SDRs can also be used to repay debt that a country owes, for example to the IMF, or can be held as collateral.
Since the creation of the SDRs after World War II, the IMF has allocated 204.2 billion SDR (equivalent to about US $ 290 billion) to its member countries, including SDR 182.6 billion in 2009 as a result of the global financial crisis. The 2009 allocation was the most recent and by far the largest.
Renewed urgency for special drawing rights
Last year, several world leaders, humanitarian groups, and other experts have expressed support for issuing a new SDR allocation as part of efforts to help the international community recover from the pandemic. Such a move would provide additional reserves to each IMF member country at a time when financing needs remain significant, especially for low-income countries hit hard by the virus.
This additional source of funding would give low-income countries more flexibility and power to meet the immediate and long-term needs arising from the COVID-19 crisis, whether it is purchasing vaccines or revitalizing the labor force and economy.
At a time when economic disparities are widening and the United Nations’ Global goals are increasingly out of reach, it is crucial to ensure that governments have the necessary resources to support their most vulnerable populations.
It will be much more difficult to revive global growth, end extreme poverty and get back on track to meet global goals in the next decade if these vulnerable populations are not taken into account and currently supported.
This month, French President Emmanuel Macron, German Chancellor Angela Merkel, European Council President Charles Michel, Senegalese President Macky Sall, UN Secretary General António Guterres and European Commission President Ursula von der Leyen posted a editorial that included a call for the use of DTS reduce the debt burden and support a sustainable recovery in developing countries.
“We have to make sure that the global recovery reaches everyone,” they said. wrote. “This means stepping up our support to developing countries, particularly in Africa, building on and beyond existing partnerships…”
Italy, chair this year of the Group of 20, the world’s largest advanced and emerging economies, will urge the G20 to support the new SDR 500 billion issue when they meet in Rome, according to Reuters.
Gelsomina Vigliotti, director general of the Italian treasury for international financial relations, described the provision of these additional reserve assets as “top priority”.
“We must give fiscal space to the low-income countries in greatest difficulty”, Vigliotti mentionned. “The aim is to ensure that a new allocation of SDRs is made available to countries that need it most. “
Under the administration of former US President Donald Trump, the United States had blocked the idea of a new allocation of SDRs, claiming that this would provide more resources to richer countries since allocations are based on countries’ participation in the IMF.
However, Vigliotti and IMF Managing Director Kristalina Georgieva stressed that advanced economies that do not need their SDRs can donate their allowance to help developing countries.
In the context of the 2009 financial crisis, the IMF issued a new SDR allocation for similar reasons – to help the international economy recover. Although a smaller number of SDRs went to low-income IMF members due to the allocation system, in most cases the process resulted in a proportionately larger increase in reserves for the poorest countries than for the advanced economies.
“The general SDR allocation is a key part of our response to the global crisis, demonstrating the value of a cooperative multilateral approach,” said Caroline Atkinson, IMF director of external relations, said in 2009. “Low income members of the Fund will benefit greatly.
The United States has a IMF control vote on SDR-related decisions, meaning that if it joined with other countries in supporting a new allocation, such financial support could once again help the world recover.
Now, with a new US administration under President Joe Biden, hope is reborn for the passage of an SDR allocation in response to the COVID-19 crisis.
The Biden administration has already signaled its support for a new SDR allocation, according to Reuters, but experts and civil society organizations continue to call for urgent action. U.S. Treasury Secretary Janet Yellen is expected to make a decision by February 26, when G20 members will meet to discuss the matter further.