Proposal For A General Allocation Of Special Drawing Rights

On June 25, the Executive Board discussed a proposal for a historic US$650 billion general allocation of SDRs to address the long-term global need to supplement existing reserve assets. Following concurrence by the Executive Board on July 8, the Managing Director submitted the proposal to the Board of Governors on July 9 for its approval by August 2. If approved, which requires an 85 percent majority of the total voting power, the allocation would become effective by the end of August. The proposal makes a case for an allocation of US$650 billion (about SDR 456 billion), based on an assessment of IMF member countries’ long-term global reserve needs. It also includes measures to enhance the transparency and accountability in the reporting and use of SDRs while preserving the reserve asset characteristic of the SDR. The general allocation would help many EMDCs that are liquidity constrained smooth needed adjustment and avoid distortionary policies, while providing scope for spending on crisis response and vaccines.

On June 25, the Executive Board discussed a proposal for a historic USD 650 billion general allocation of SDRs to address the long-term global need to supplement existing reserve assets. Following concurrence by the Executive Board on July 8, the Managing Director submitted the proposal to the Board of Governors on July 9 for its approval by August 2. If approved, which requires an 85 percent majority of the total voting power, the allocation would become effective by the end of August. The proposal makes a case for an allocation of USD 650 billion (about SDR 456 billion), based on an assessment of IMF member countries' long-term global reserve needs. It also includes measures to enhance the transparency and accountability in the reporting and use of SDRs while preserving the reserve asset characteristic of the SDR. The general allocation would help many EMDCs that are liquidity constrained smooth needed adjustment and avoid distortionary policies, while providing scope for spending on crisis response and vaccines.

On June 25, 2021, the Executive Board discussed a staff paper setting forth the considerations underlying the case for a general allocation of special drawing rights (SDRs) of an amount equivalent to US$650 billion (about SDR 456 billion) during the Eleventh Basic Period and the key features that could be included in the Managing Director’s proposal for this general allocation.

This paper is the outcome of a periodic process regarding the allocation (or cancellation) of Special Drawing Rights (SDRs), and is a report by the Managing Director to the Board of Governors and the Executive Board along with a staff paper that assesses the merits of a general allocation. Following consultations with the Executive Board on the case for a general allocation, the Managing Director decided not to make a proposal for a general SDR allocation at this time. Though there was openness among many Directors to consider a proposal in the upcoming basic period, there was also a widely-shared sense that it would be premature at this stage, owing to ongoing discussions on the role of the SDR in the context of reform of the international monetary system. Decisions by the Fund on a general allocation or cancellation of SDRs take place at regular intervals (or basic periods) of normally five years, with the Managing Director’s report due six months before each new basic period. The tenth basic period begins on January 1, 2012. The report can either propose a general SDR allocation (or cancellation of previous allocations), or conclude that the conditions set out in the IMF’s Articles of Agreement for an allocation or cancellation of SDRs are not currently in place, including broad support among IMF members that participate in the SDR Department. Under the IMF’s Articles of Agreements, the Managing Director may also propose allocations of SDRs at the request of the Board of Governors or the Executive Board. In this regard, an allocation could be considered if there is a long-term global need for reserves that could be usefully filled at least in part by SDRs and if it would not lead to inflationary pressures, assuming there is broad support among IMF members participating in the SDR Department.

This paper is the outcome of a periodic process regarding the allocation (or cancellation) of Special Drawing Rights (SDRs), and is a report by the Managing Director to the Board of Governors and the Executive Board along with a staff paper that assesses the merits of a general allocation. Following consultations with the Executive Board on the case for a general allocation, the Managing Director decided not to make a proposal for a general SDR allocation at this time. Though there was openness among many Directors to consider a proposal in the upcoming basic period, there was also a widely-shared sense that it would be premature at this stage, owing to ongoing discussions on the role of the SDR in the context of reform of the international monetary system. Decisions by the Fund on a general allocation or cancellation of SDRs take place at regular intervals (or basic periods) of normally five years, with the Managing Director's report due six months before each new basic period. The tenth basic period begins on January 1, 2012. The report can either propose a general SDR allocation (or cancellation of previous allocations), or conclude that the conditions set out in the IMF's Articles of Agreement for an allocation or cancellation of SDRs are not currently in place, including broad support among IMF members that participate in the SDR Department. Under the IMF's Articles of Agreements, the Managing Director may also propose allocations of SDRs at the request of the Board of Governors or the Executive Board. In this regard, an allocation could be considered if there is a long-term global need for reserves that could be usefully filled at least in part by SDRs and if it would not lead to inflationary pressures, assuming there is broad support among IMF members participating in the SDR Department.

Faced with a global crisis of exceptional magnitude, the membership of the IMF has called for ambitious steps to strengthen the global financial safety net. These include, alongside efforts to strengthen the Fund’s lending capacity, an allocation of SDRs equivalent to US$250 billion to become effective well before the 2009 Annual Meetings. This call recognized that an SDR allocation is a prime example of cooperative monetary response to a global predicament. As such it would build confidence by adding to other concrete evidence of the international community’s commitment to a collaborative response to the crisis. This paper follows up on the IMFC’s request, in its Spring 2009 communiqué, for the IMF to put forward a concrete proposal assessing the case for such a US$250 billion allocation and describing how it could be implemented.

This book edited by Michael Mussa, James M. Boughton, and Peter Isard, records the proceedings of a seminar held at the IMF in March 1996 on the future of the special drawing right (SDR), given changes in the international monetary system since the inception of the SDR. The seminar focuses on the differences in opinion in the international community on the desirability or feasibility of an additional allocation of SDRs.