International Monetary Fund: Special Drawing Rights Allocation

International Monetary Fund: Special Drawing Rights Allocation

May 19, 2021
International Monetary Fund: Special Drawing Rights
Allocation
Special Drawing Rights (SDRs) are international reserve
total allocations of SDRs at the same interest rate. The SDR
assets created by the International Monetary Fund (IMF) to
interest rate is a weighted average of 3-month sovereign bil
supplement member countries’ official foreign exchange
rates of these currencies. The composition of the SDR
reserves. In response to the health and economic effects of
basket is reviewed every five years, and was next scheduled
the Coronavirus Disease 2019 (COVID-19) pandemic, the
to be reviewed by September 30, 2021. In March 2021,
G-20 finance ministers in April 2021 announced their
IMF members agreed to postpone the review until 2022 due
support for an SDR allocation worth approximately $650
to the ongoing discussions about a new SDR allocation.
billion. (While the IMF has not announced an exact
While the SDR was agreed in principle in 1967, it was not
number, an allocation of such size would be approximately
initiated until 1969 after the U.S. passage of the Special
SDR 448.5 billion).
Drawing Rights Act of 1968 (22 C.F.R. § 286n). To date,
This would be the first such allocation since the global
there have been four rounds of allocations, the most recent
financial crisis of 2008-2009. Some Members of Congress
in 2009, totaling SDR 204.20 billion (approximately $294
have sponsored legislation calling for a substantially larger
billion).
SDR allocation (H.R. 986; S. 67). Other Members have
expressed concerns about the SDR allocation and sponsored

Figure 1. IMF SDR Allocations (To Date)
legislation to strengthen congressional oversight and
(SDR billions)
authority over U.S. support for SDR increases (H.R. 1513;
H.R. 1568).
Background on SDRs
Central banks and other monetary authorities use
international reserve assets to: (1) supplement domestic
holdings of foreign exchange reserves; (2) meet domestic
demand for foreign currency; and (3) assist in maintaining
the external value of a domestic currency. The IMF created
SDRs in 1969 as a way to bolster members’ reserve
holdings: SDRs can be exchanged among IMF members for
hard currency and used in international transactions by
central banks and other monetary authorities. IMF member

countries, as well as some 15 international organizations
Source: International Monetary Fund.
such as the European Central Bank, the Bank for
International Settlements, and the International Fund for
SDRs are a small percentage of global foreign reserves.
Agriculture and Development, are able to buy and sell
Total currency reserves were $12.70 trillion at the end of
SDRs. Private investors and firms are not permitted to
2020. Of the countries that report the currency composition
engage in SDR transactions.
of their foreign exchange reserves, the U.S. dollar accounts
for 59% of the total. By contrast, SDR allocations total
SDRs derive their value from the fact that IMF member
about $294 billion, around 2% of total foreign exchange
countries are willing to hold them and exchange them for
reserves. This is similar to the proportion of global foreign
hard currency. A former IMF general counsel, Francois
exchange reserves held in Canadian dollars or Australian
Gianviti compared the SDR to play money: “The difference
is that… the ‘
dollars. The creation, allocation, and usage of SDRs is
play money’ can be used to buy real assets
separate from the IMF’s lending resources According to the
and discharge real liabilities and, at the end, real value must
be returned if the allocated SDRs have been spent.”
rules governing SDRs, SDRs belong to the countries

holding them and not to the IMF.
The value of SDRs fluctuates with the value of the
currencies in its basket. Since 2016, the SDR is equal to the
COVID-19 Crisis Response & U.S. Policy
exchange value of a weighted basket of five currencies: the
Ensuring developing countries’ access to hard currency has
U.S. dollar, the Chinese renminbi, the European euro, the
been a priority for international economic policy makers
Japanese yen, and the British pound sterling. As of May 18,
throughout the COVID-19 pandemic. While advanced
2021, one SDR equals U.S. $1.44. When an IMF member
economies have been able to access central bank swap
exchanges their SDR holdings to another IMF member for
arrangements with the Federal Reserve, European Central
hard currency, interest is applied. IMF members receive
Bank, and other major central banks, low-income and
interest on their SDR holdings and pay charges on their
developing countries have fewer available options.
https://crsreports.congress.gov

International Monetary Fund: Special Draw ing Rights Al ocation
Several policymakers, analysts, and non-profit
2. The Treasury Department meets specific
organizations have called for a new allocation of SDRs to
congressional notification requirements
increase developing countries’ access to hard currency. For
ninety days prior to the SDR allocation.
example, Jubilee USA, a non-profit financial reform
Under the proposed $650 billion SDR increase, the United
organization, called for a $3 trillion SDR allocation in
States would be allocated $113.36 billion of SDRs (based
February 2020. Legislation introduced in April 2020 would
on a U.S. quota share of 17.44% of total quotas). Thus, the
have, among other things, instructed the U.S. Treasury to
proposed $650 billion SDR allocation would be below the
support a $3 trillion SDR allocation (116th Congress, H.R.
threshold that would require congressional authorization.
6581).
On April 1, 2021, the Treasury Department formally
Due to the IMF’s voting rules and the substantial U.S.
notified Congress of its plans for the new allocation,
voting share at the IMF, U.S. support is required for a new
starting the 90-day congressionally mandated consultation
SDR allocation. During the Trump Administration,
process, which would be completed in early July.
Treasury Secretary Steven Mnuchin opposed a new SDR
allocation, arguing that only a small portion of the SDRs
As noted above, some Members of Congress have
would go to low-income countries. Additionally,
sponsored legislation calling for an SDR allocation of at
policymakers raised concerns about a new SDR allocation
least $2 trillion (H.R. 986; S. 67)—substantially larger than
providing funds to China, which already holds sizeable
the proposed SDR allocation. Advocates argue that, unlike
foreign exchange reserves, and providing funding
other measures, such as a full IMF quota increase, SDR
opportunities for countries subject to U.S. sanctions.
allocations are able to be implemented quickly and benefit a
larger number of developing countries.
The U.S. position shifted under the Biden Administration.
In February 2021 Treasury Secretary Janet Yellen
Other Members have introduced legislation to require or
announced support for a new SDR allocation. In March
strengthen congressional authorization for U.S. support of
2021, the G-7 endorsed a “new and sizable” allocation of
an SDR allocation (H.R. 1513; H.R. 1568). Skeptics have
SDRs, and the IMF Executive Directors discussed an SDR
raised concerns about the transparency, accountability, and
allocation of $650 billion. At current exchange rates, this
effectiveness of a new SDR allocation. Additionally,
would be approximately SDR 448.5 billion, increasing the
concerns have been raised about potential risks to U.S.
amount of IMF SDRs allocated to IMF member counties
taxpayers and whether a new SDR allocation might increase
from SDR 204.2 billion to approximately SDR 652.6
financial support to countries subject to U.S. financial
billion.
sanctions, such as Iran and Venezuela.
The G-20 announced its support for an SDR allocation in
Select Policy Questions for Congress
April 2021. The Treasury Department has linked its support
for the SDR allocation with measures to increase
 Is the current threshold triggering congressional
transparency surrounding SDR transactions. It is also
authorization for U.S. support of an SDR allocation
working on ways for advanced countries to lend a portion
optimal? What is the trade-off between granting the
of their SDRs in support initiatives targeting low-income
Administration flexibility during crises and safeguarding
countries.
congressional role in formulating U.S. IMF policy?

Such an allocation would likely have a substantial impact in
How helpful was the SDR allocation during the global
low-income countries. According to one analysis by the
financial crisis of 2008-2009? In what ways is that
Peterson Institute for International Economics’s Maurice
financial crisis relevant to the economic crisis triggered
Obstfeld and Harvard Kennedy School’s Edwin Truman,
by the pandemic?
4.5% of a $650 billion SDR allocation ($29.2 billion)
 How are negotiations to improve the transparency of
would go to low-income countries that are eligible to
SDR transactions proceeding? What information about
borrow from the World Bank’s International Development
SDR transactions should be public?
Association (IDA). This amount would exceed average

annual IDA disbursements during the past three years
What is the IMF policy on SDR transactions involving
($17.8 billion) by more than 60%.
countries subject to sanctions?
The Role of Congress and Congressional  What are the Administration’s plans, if any, for pursuing
Debate
another SDR allocation when the new five-year SDR
The Special Drawing Rights Act of 1968 (22 C.F.R. §
period begins in 2022?
286n) sets forth the procedures for U.S. participation in the
 What are the options for leveraging a portion of some
IMF’s SDR Department, among other things. Under the
countries’ SDRs to support low-income countries? What
SDR Act, Congress has authorized Treasury to support an
is China’s interest in participating in such initiatives?
SDR allocation without additional legislation under two
conditions:
Martin A. Weiss, Specialist in International Trade and
Finance
1. The amount allocated to the United States
Rebecca M. Nelson, Specialist in International Trade and
does not exceed U.S. quota in the IMF
Finance
(currently $119.50 billion) during a five-
year period; and
IF11835

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International Monetary Fund: Special Draw ing Rights Al ocation

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