The Special Drawing Rights (SDR) can be exchanged among governments for freely usable currencies in times of need.
The International Monetary Fund (IMF) approved an allocation of Special Drawing Rights (SDR) equivalent to US$650 billion to boost global liquidity amid the COVID-19 pandemic.
"This is a historic decision - the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis," IMF Director Kristalina Georgieva said, noting that the SDR allocation will benefit all IMF members, address the long-term global need for reserves, and foster the resilience and stability of the global economy.
About US$275 billion (SDR 193 billion) of the new allocation will go to emerging markets and developing countries. Many nations entered this crisis with high debt levels and limited resources to ramp up health and social spending, and access to international liquidity is vital to help them combat the crisis.
The SDR allocation would also add to existing IMF and broader multilateral efforts, such as the Group of 20 (G20) Debt Service Suspension Initiative, directed toward cushioning the impact of the pandemic on financially constrained economies. Moreover, the IMF noted that the new SDR allocation will "address a long-term global need" to supplement existing reserve assets.
While subject to uncertainty, IMF staff estimates the long-term global need for reserve assets in the range of US$1.1 trillion to US$1.9 trillion over the next five years. An SDR allocation of US$650 billion would cover about 30-60 percent of the estimated global reserve need.
The SDR allocation proposal was delayed for more than a year, as the United States, the IMF's biggest shareholder with a unique veto power, blocked it early last year under the Trump administration. The Biden administration quickly reversed the position and voiced its support for the plan.
The proposal gained wide support during the virtual spring meetings of the IMF and the World Bank held in April. The final approval by the IMF board of governors, which requires an 85-percent majority of the total voting power of all IMF members, came just weeks after the IMF executive board approved the proposal. The new SDR allocation will become effective on Aug. 23.
The SDR, an international reserve asset created by the IMF in 1969 to supplement its member countries' official reserves, can be exchanged among governments for freely usable currencies in times of need. So far, SDR 204.2 billion (US$293 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis.