IMF Injecting $283 Billion in SDRs into Global Economy, Boosting Reserves

• Author: Glenn Gottselig
• Position: IMF Survey online

The allocation, equivalent to $250 billion, was made on August 28 and will be followed by an additional, albeit much smaller, allocation of $33 billion on September 9. With the two allocations totaling roughly $283 billion, the outstanding stock of SDRs would increase nearly ten-fold to total about $316 billion.

There are no notes or coins denominated in SDRs, nonetheless the SDR does play a role as an interest-bearing international reserve asset. The allocation of SDRs by the IMF boosts member countries' reserves because SDRs can be turned into usable currencies. Once the SDRs have been added to a member country's official reserves, the country can voluntarily exchange its SDRs for hard currencies, such as the U.S. dollar, euro, yen, or pound sterling, through voluntary trading arrangements with other IMF member countries.

Some countries have already volunteered to set up trading arrangements that will facilitate the buying and selling of SDRs.

SDR allocations respond to G-20's call

It was at its April summit in London that the Group of Twenty (G-20) industrial and emerging market countries called for an SDR allocation of $250 billion. The proposed general allocation was approved by the IMF's Board of Governors on August 7, 2009, and came into effect on August 28. The allocation is based on a long-term global need to supplement IMF members' existing reserve assets and it provides liquidity to the global economic system.

The G-20 had also called for urgent ratification of a long-pending amendment to the IMF's Articles of Agreement. This so-called Fourth Amendment was proposed to enable all Fund members to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981-now more than one-fifth of the current IMF membership-have never received an SDR allocation.

The amendment to the Articles had originally been set in motion over ten years ago, but it needed to then pass successfully through the legislatures of three-fifths of the Fund's members, having 85 percent of the total voting power. Recently amended U.S. legislation paved the way for making the amendment effective in August.

The amendment provides for a special one-time allocation that will be separate and additional to any...