The Challenge of Reallocation SDRs: A Primer
The approval of a new allocation of Special Drawing Rights (SDRs) by the International Monetary Fund (IMF) is the first effort to deal with the financial impact of the COVID-19 crisis on a global level. The extra $650 billion of reserve assets to be injected onto the balance sheets of the world’s central banks is an important response to the financial squeeze felt by many countries, especially lower- and middle-income countries (LMICs) that do not have the space for the kind of fiscal and monetary expansion that many developed countries have undertaken.
The purpose of this note is to reframe the concept of SDRs and then to outline in broad the types of proposals that have been mooted as a basis for more detailed work over the coming months.
We want to see what proposals are in line with international mandates for SDR use and what political considerations come into play, but most importantly outline the technical work that needs to be done so that the SDRs can be “put to work” when they become available in August 2021.