## Proposal by the Managing Director for an Allocation of Special Drawing Rights for the Eleventh Basic Period

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### Introduction and Executive Board Action
- On June 25, 2021, the Executive Board discussed a staff paper setting forth considerations for a general allocation of special drawing rights (SDRs) equivalent to US$650 billion (about SDR 456 billion).
- The Managing Director prepared a report to the Board of Governors including:
  - Her proposal for a general allocation of SDRs with key features along the lines described in SM/21/86.
  - A draft Board of Governors’ resolution approving such allocation.
- The proposed Executive Board decision:
  - Concurs in the Managing Director’s proposal.
  - Directs the Secretary to send the report and proposed Board of Governors’ resolution to all Fund members that are participants in the SDR Department.
  - Authorizes the receipt of the proposed allocation by a member that became a participant after commencement of the Eleventh Basic Period but prior to the date of the allocation decision (the Principality of Andorra).
  - Requests the Board of Governors to vote on the proposed Resolution without meeting; votes must be received at the seat of the Fund before 6:00 p.m., Washington time, on or before August 2, 2021.
  - Provides that the effective date of the Resolution shall be the last day allowed for voting.
- On July 8, 2021, the Executive Board authorized the Principality of Andorra to receive the proposed allocation.

### Case for a General SDR Allocation (Rationale)
- Policy objectives:
  - Strengthen members’ external positions, build confidence, foster resilience and stability of the global economy, and contribute to the global economic recovery.
  - Help meet long-term global need to supplement reserves and prevent long-term economic scarring from the COVID-19 pandemic.
- Context and assessment:
  - The IMFC called for a comprehensive proposal for a general SDR allocation in an amount equivalent to US$650 billion (about SDR 456 billion).
  - The Managing Director ascertained broad support among SDR Department participants and is satisfied the proposal is consistent with Article XVIII, Section 1(a).
  - The economic environment in 2021 contrasts with June 2016 when no general allocation was proposed.
- Advantages of SDR allocation:
  - Less costly than market borrowing or accumulating reserves via current account surpluses.
  - No immediate rollover risk; rapid unconditional liquidity to all members.
  - Complements other layers of the global financial safety net and promotes international monetary cooperation.
  - Expected to support global recovery and help avoid “economic stagnation and deflation as well as excess demand and inflation in the world,” consistent with Article I and Article XVIII, Section 1(a).

### Evidence on Long-Term Global Need and Supply of Reserve Assets
- Estimates of long-term global need for additional reserve assets:
  - Range of US$1.1 to 1.9 trillion (about SDR 0.8 to 1.4 trillion) over the next five years.
  - This range is higher than the 2016 assessment of about US$0.7 to 1.7 trillion (about SDR 0.5 to 1.2 trillion).
  - The increase since 2016 is mostly due to higher need for non-reserve currency issuing EMDCs; roughly half of the increase can be attributed to the COVID-19 crisis.
- Expected coverage by other financing sources:
  - April 2021 WEO estimates that countries that need to supplement reserve assets could cover about US$0.5–0.6 trillion (about SDR 0.3 to 0.4 trillion) by 2025 from current account surpluses, net private capital inflows, and/or official financial support.
- Allocation sizing rationale:
  - An allocation in a single tranche equivalent to US$650 billion (about SDR 456 billion) would cover a significant share of the residual long-term global reserve need after other sources.
  - Historical comparison: the 2009 allocation covered about 30 to 60 percent of long-term global reserve need; applying that percentage to 2021 suggests a suggested allocation range of US$0.3–1.2 trillion (about SDR 0.2–0.8 trillion).

### Key Features and Mechanics of the Proposed Allocation
- Proposed allocation amount and distribution:
  - General allocation in an amount equivalent to US$650 billion (about SDR 456 billion).
  - Constitutes 95.8455025357 percent of each member’s quota.
- Eligibility:
  - All Fund members that are participants in the SDR Department are eligible to receive allocations, including the Principality of Andorra (participant after January 1, 2017) if authorized by the Executive Board.
- Timing and tranche:
  - Proposed to be made in a single tranche.
  - Proposed that the full amount of the allocation take place 21 days after adoption by the Board of Governors of the relevant resolution.
  - Articles permit allocations at other than yearly intervals (Article XVIII, Section 2(c)).
- Operational/administrative actions:
  - Secretary authorized to send the Report and proposed Resolution to each Fund member by rapid means of communication.
  - Secretary authorized to take further actions necessary to carry out the decision.

### Transparency, Accountability, and Post-Allocation Measures
- Enhancements to promote transparency and accountability while preserving the SDR as an unconditional reserve asset:
  - Staff will publish additional information on SDR holdings, transactions, and trading in a manner that preserves the nature of the SDR and promotes smooth functioning of the voluntary trading market.
  - Staff is preparing a guidance note to provide a consistent framework for assessing macroeconomic implications of the allocation at the country level and to outline principles to enhance transparency and accountability in the use of SDRs (see section D of the attached report to the Board of Governors).
  - Staff will prepare an ex-post report about two years after the allocation covering:
    - Use of SDRs for Fund transactions and operations.
    - Broad spending patterns.
    - Macroeconomic outcomes.

### Risks, Drawbacks, and Reviews
- Potential risks and drawbacks:
  - Distribution in proportion to quota shares does not reflect individual members’ reserve needs (Article XVIII, Section 2(b)).
  - Some recipients could unduly delay needed macroeconomic adjustment and reforms.
  - Recipients may use SDRs without realizing potential costs and risks, including interest charges on uses of SDRs at variable interest rates.
- Monitoring and review:
  - Global need for SDRs will be kept under review; a review is required at the latest six months before the end of the Twelfth Basic Period (i.e., by June 30, 2026), involving consultation with Executive Directors.

### Governance and Voting Requirements
- Decision-making:
  - Pursuant to Article XVIII, Section 4(a), decisions on allocations of SDRs “shall be made by the Board of Governors on the basis of proposals of the Managing Director concurred in by the Executive Board.”
  - Executive Board concurrence requires a majority of the votes cast.
  - Adoption of the Board of Governors’ resolution to allocate SDRs requires an 85 percent majority of the total voting power of members that are participants in the SDR Department (Article XVIII, Section 4(d)).
- Voting logistics for this proposal:
  - Board of Governors requested to vote without meeting; votes must be cast by Governors or Alternate Governors by rapid means of communication and received before 6:00 p.m., Washington time, on or before August 2, 2021.
  - All votes held in custody of the Secretary until counted; proceedings confidential until Executive Board determines result of the vote.
  - The effective date of the Resolution shall be the last day allowed for voting.

### Legal Basis, Rate, and Timing Details (Article XVIII, Section 2)
- Legal provisions:
  - Article XVIII, Section 2(b) provides that “the rates at which allocations are to be made shall be expressed as percentages of quotas on the date of each decision to allocate” and that “the percentages shall be the same for all participants.”
  - Article XVIII, Section 2(c) permits the basis for allocations to be the quotas of participants on dates other than the date of the decision to allocate.
- Rate and sizing:
  - Proposed total equivalent amount for the allocation: US$650 billion.
  - Rate for the proposed allocation: 95.8455025357 percent of eligible participants’ quotas on the date of the adoption of the Board of Governors’ resolution on the allocation of SDRs.
  - The rate is derived by dividing an amount of SDRs equivalent to US$650 billion by the total of paid quotas of those participants, using the official SDR/USD exchange rate as of July 1, 2021.
  - The nominal U.S. dollar equivalent of the allocation would be expected to be about $650 billion, but this U.S. dollar equivalent could differ due to changes in USD/SDR exchange rate.
  - The nominal size of the SDR allocation could be slightly higher if one or more members who have not yet consented to and/or paid for their respective quota increases under the 14th General Review of Quotas do so prior to the effectiveness of the allocation.

### Opt-Outs and Effect on Total Amount
- Reduction if participants opt out:
  - The total amount of SDRs to be allocated would be reduced if a participant entitled to receive allocations “opts out” of the allocation.
  - Under Article XVIII, Section 2(e), a member may opt out only if:
    - (a) the Governor for the participant did not vote in favor of the decision; and
    - (b) the participant has notified the Fund in writing prior to the first allocation of SDRs under that decision that it does not wish SDRs to be allocated to it under the decision.

### Implications for the SDR Market and Trading Arrangements
- Market expectations and capacity:
  - Sales of SDRs are anticipated to increase after the SDR allocation.
  - Voluntary Trading Arrangements (VTA) purchasing capacity would be sufficient even in a high demand scenario.
  - VTAs will continue to have ample buying and selling capacities to meet demand for sales and acquisitions of SDRs.
  - The voluntary nature and flexibility of the market contributes to VTA members’ willingness to have a VTA and actively participate.
- Market enhancement measures:
  - A two-pronged approach has been initiated to further enhance the voluntary SDR trading market:
    - (i) broadening participants; and
    - (ii) enhancing operational flexibility under existing VTAs.
  - Post-allocation requests for exchange of SDRs are expected to continue to primarily be handled via the voluntary trading market.
  - The Articles of Agreement provide for a backstop designation mechanism to guarantee the liquidity of the SDR.

### Formal Proposal and Resolution Elements
- Proposal summary:
  - Allocate SDRs to participants in the Special Drawing Rights Department that are eligible, in accordance with the Articles of Agreement, to receive allocations during the Eleventh Basic Period.
  - The allocation (and recording to participants’ SDR holdings) shall be made on the twenty-first day following the date on which the proposed Board of Governors’ resolution approving the allocation becomes effective.
  - The rate for each participant receiving an allocation shall be 95.8455025357 percent of the quota of each participant on the date on which the proposed Board of Governors’ resolution approving the allocation becomes effective.
- Executive Board concurrence: The foregoing proposal was concurred in by the Executive Board on July 8, 2021.
- Resolution language adopted by the Board of Governors (summary points):
  - Make an allocation of SDRs to eligible participants for the Eleventh Basic Period.
  - The allocation shall be made on the twenty-first day following the date on which the resolution becomes effective.
  - The rate for the allocation shall be 95.8455025357 percent of the quota of each eligible participant on the date on which this resolution becomes effective.

*Source: Proposal by the Managing Director of the International Monetary Fund for an Allocation of Special Drawing Rights for the Eleventh Basic Period (text from provided content).*

### 1. On June 25, 2021, the  Executive Board discussed a staff paper setting forth the

### Proposal by the Managing Director for an Allocation of Special Drawing Rights for the Eleventh Basic Period

### Introduction and Executive Board Action
- On June 25, 2021, the Executive Board discussed a staff paper setting forth considerations for a general allocation of special drawing rights (SDRs) equivalent to US$650 billion (about SDR 456 billion).
- The Managing Director prepared a report to the Board of Governors including:
  - Her proposal for a general allocation of SDRs with key features along the lines described in SM/21/86.
  - A draft Board of Governors’ resolution approving such allocation.
- The proposed Executive Board decision:
  - Concurs in the Managing Director’s proposal.
  - Directs the Secretary to send the report and proposed Board of Governors’ resolution to all Fund members that are participants in the SDR Department.
  - Authorizes the receipt of the proposed allocation by a member that became a participant after commencement of the Eleventh Basic Period but prior to the date of the allocation decision (the Principality of Andorra).
  - Requests the Board of Governors to vote on the proposed Resolution without meeting; votes must be received at the seat of the Fund before 6:00 p.m., Washington time, on or before August 2, 2021.
  - Provides that the effective date of the Resolution shall be the last day allowed for voting.
- On July 8, 2021, the Executive Board authorized the Principality of Andorra to receive the proposed allocation.

### Case for a General SDR Allocation (Rationale)
- Policy objectives:
  - Strengthen members’ external positions, build confidence, foster resilience and stability of the global economy, and contribute to the global economic recovery.
  - Help meet long-term global need to supplement reserves and prevent long-term economic scarring from the COVID-19 pandemic.
- Context and assessment:
  - The IMFC called for a comprehensive proposal for a general SDR allocation in an amount equivalent to US$650 billion (about SDR 456 billion).
  - The Managing Director ascertained broad support among SDR Department participants and is satisfied the proposal is consistent with Article XVIII, Section 1(a).
  - The economic environment in 2021 contrasts with June 2016 when no general allocation was proposed.
- Advantages of SDR allocation:
  - Less costly than market borrowing or accumulating reserves via current account surpluses.
  - No immediate rollover risk; rapid unconditional liquidity to all members.
  - Complements other layers of the global financial safety net and promotes international monetary cooperation.
  - Expected to support global recovery and help avoid “economic stagnation and deflation as well as excess demand and inflation in the world,” consistent with Article I and Article XVIII, Section 1(a).

### Evidence on Long-Term Global Need and Supply of Reserve Assets
- Estimates of long-term global need for additional reserve assets:
  - Range of US$1.1 to 1.9 trillion (about SDR 0.8 to 1.4 trillion) over the next five years.
  - This range is higher than the 2016 assessment of about US$0.7 to 1.7 trillion (about SDR 0.5 to 1.2 trillion).
  - The increase since 2016 is mostly due to higher need for non-reserve currency issuing EMDCs; roughly half of the increase can be attributed to the COVID-19 crisis.
- Expected coverage by other financing sources:
  - April 2021 WEO estimates that countries that need to supplement reserve assets could cover about US$0.5–0.6 trillion (about SDR 0.3 to 0.4 trillion) by 2025 from current account surpluses, net private capital inflows, and/or official financial support.
- Allocation sizing rationale:
  - An allocation in a single tranche equivalent to US$650 billion (about SDR 456 billion) would cover a significant share of the residual long-term global reserve need after other sources.
  - Historical comparison: the 2009 allocation covered about 30 to 60 percent of long-term global reserve need; applying that percentage to 2021 suggests a suggested allocation range of US$0.3–1.2 trillion (about SDR 0.2–0.8 trillion).

### Key Features and Mechanics of the Proposed Allocation
- Proposed allocation amount and distribution:
  - General allocation in an amount equivalent to US$650 billion (about SDR 456 billion).
  - Constitutes 95.8455025357 percent of each member’s quota.
- Eligibility:
  - All Fund members that are participants in the SDR Department are eligible to receive allocations, including the Principality of Andorra (participant after January 1, 2017) if authorized by the Executive Board.
- Timing and tranche:
  - Proposed to be made in a single tranche.
  - Proposed that the full amount of the allocation take place 21 days after adoption by the Board of Governors of the relevant resolution.
  - Articles permit allocations at other than yearly intervals (Article XVIII, Section 2(c)).
- Operational/administrative actions:
  - Secretary authorized to send the Report and proposed Resolution to each Fund member by rapid means of communication.
  - Secretary authorized to take further actions necessary to carry out the decision.

### Transparency, Accountability, and Post-Allocation Measures
- Enhancements to promote transparency and accountability while preserving the SDR as an unconditional reserve asset:
  - Staff will publish additional information on SDR holdings, transactions, and trading in a manner that preserves the nature of the SDR and promotes smooth functioning of the voluntary trading market.
  - Staff is preparing a guidance note to provide a consistent framework for assessing macroeconomic implications of the allocation at the country level and to outline principles to enhance transparency and accountability in the use of SDRs (see section D of the attached report to the Board of Governors).
  - Staff will prepare an ex-post report about two years after the allocation covering:
    - Use of SDRs for Fund transactions and operations.
    - Broad spending patterns.
    - Macroeconomic outcomes.

### Risks, Drawbacks, and Reviews
- Potential risks and drawbacks:
  - Distribution in proportion to quota shares does not reflect individual members’ reserve needs (Article XVIII, Section 2(b)).
  - Some recipients could unduly delay needed macroeconomic adjustment and reforms.
  - Recipients may use SDRs without realizing potential costs and risks, including interest charges on uses of SDRs at variable interest rates.
- Monitoring and review:
  - Global need for SDRs will be kept under review; a review is required at the latest six months before the end of the Twelfth Basic Period (i.e., by June 30, 2026), involving consultation with Executive Directors.

### Governance and Voting Requirements
- Decision-making:
  - Pursuant to Article XVIII, Section 4(a), decisions on allocations of SDRs “shall be made by the Board of Governors on the basis of proposals of the Managing Director concurred in by the Executive Board.”
  - Executive Board concurrence requires a majority of the votes cast.
  - Adoption of the Board of Governors’ resolution to allocate SDRs requires an 85 percent majority of the total voting power of members that are participants in the SDR Department (Article XVIII, Section 4(d)).
- Voting logistics for this proposal:
  - Board of Governors requested to vote without meeting; votes must be cast by Governors or Alternate Governors by rapid means of communication and received before 6:00 p.m., Washington time, on or before August 2, 2021.
  - All votes held in custody of the Secretary until counted; proceedings confidential until Executive Board determines result of the vote.
  - The effective date of the Resolution shall be the last day allowed for voting.

*Source: Proposal by the Managing Director of the International Monetary Fund for an Allocation of Special Drawing Rights for the Eleventh Basic Period (text from provided content).*

### 17. Article XVIII, Section 2(b) provides that “the rates at which allocations are to be

### 17. Article XVIII, Section 2(b) provides that “the rates at which allocations are to be

### Legal basis and timing for allocation
- Article XVIII, Section 2(b) provides that “the rates at which allocations are to be made shall be expressed as percentages of quotas on the date of each decision to allocate” and that “the percentages shall be the same for all participants.”
- Article XVIII, Section 2(c) permits the basis for allocations to be the quotas of participants on dates other than the date of the decision to allocate.
- The proposed allocation is based on participants’ paid quotas in the Fund as of the date of adoption of the Board of Governors resolution.

### Rate and sizing of the proposed allocation
- Proposed total equivalent amount for the allocation: US$650 billion.
- Rate for the proposed allocation: 95.8455025357 percent of eligible participants’ quotas on the date of the adoption of the Board of Governors’ resolution on the allocation of SDRs.
- The rate is derived by dividing an amount of SDRs equivalent to US$650 billion by the total of paid quotas of those participants, using the official SDR/USD exchange rate as of July 1, 2021, the date of the Summing Up of the Executive Board discussion.
- The proposal is consistent with the approach used in 2009.
- The nominal U.S. dollar equivalent of the allocation would be expected to be about $650 billion, but this U.S. dollar equivalent could differ due to changes in USD/SDR exchange rate.
- The nominal size of the SDR allocation could be slightly higher if one or more members who have not yet consented to and/or paid for their respective quota increases under the 14th General Review of Quotas do so prior to the effectiveness of the allocation.

### Opt-outs and effect on total amount
- The total amount of SDRs to be allocated would be reduced if a participant entitled to receive allocations “opts out” of the allocation.
- Under Article XVIII, Section 2(e), a member may opt out only if:
  - (a) the Governor for the participant did not vote in favor of the decision; and
  - (b) the participant has notified the Fund in writing prior to the first allocation of SDRs under that decision that it does not wish SDRs to be allocated to it under the decision.

### Post-allocation: transparency, accountability, and reporting
- Enhanced transparency and accountability in reporting and use of SDRs can strengthen the SDR Department and help ensure SDRs contribute to macroeconomic stability.
- Additional information on SDR holdings, transactions, and trading, together with the Board paper on the Annual Update on SDR Trading Operations, will be published.
- Additional information will include quarterly changes in SDR holdings by two broad categories:
  - (i) those related to IMF operations; and
  - (ii) SDR trading and other uses.
- A Guidance Note will be prepared to help country teams develop policy advice consistent with macroeconomic sustainability; the Guidance Note will include a section on principles that can enhance transparency and accountability in the use of SDRs in the context of global developments, the outlook, and policy priorities.
- An ex-post report on the use of SDRs will be prepared two years after the allocation to review the allocation against the broad macroeconomic context and policy priorities following the COVID-19 pandemic.
- Staff will continue to prepare a Designation Plan, which would remain confidential and not published.

### Implications for the SDR market and trading arrangements
- Sales of SDRs are anticipated to increase after the SDR allocation.
- Voluntary Trading Arrangements (VTA) purchasing capacity would be sufficient even in a high demand scenario.
- VTAs will continue to have ample buying and selling capacities to meet demand for sales and acquisitions of SDRs.
- The voluntary nature and flexibility of the market contributes to VTA members’ willingness to have a VTA and actively participate.
- A two-pronged approach has been initiated to further enhance the voluntary SDR trading market:
  - (i) broadening participants; and
  - (ii) enhancing operational flexibility under existing VTAs.
- Post-allocation requests for exchange of SDRs are expected to continue to primarily be handled via the voluntary trading market.
- The Articles of Agreement provide for a backstop designation mechanism to guarantee the liquidity of the SDR.

### Formal proposal and resolution elements
- Proposal summary:
  - Allocate SDRs to participants in the Special Drawing Rights Department that are eligible, in accordance with the Articles of Agreement, to receive allocations during the Eleventh Basic Period.
  - The allocation (and recording to participants’ SDR holdings) shall be made on the twenty-first day following the date on which the proposed Board of Governors’ resolution approving the allocation becomes effective.
  - The rate for each participant receiving an allocation shall be 95.8455025357 percent of the quota of each participant on the date on which the proposed Board of Governors’ resolution approving the allocation becomes effective.
- Executive Board concurrence: The foregoing proposal was concurred in by the Executive Board on July 8, 2021.
- Resolution language adopted by the Board of Governors (summary points):
  - Make an allocation of SDRs to eligible participants for the Eleventh Basic Period.
  - The allocation shall be made on the twenty-first day following the date on which the resolution becomes effective.
  - The rate for the allocation shall be 95.8455025357 percent of the quota of each eligible participant on the date on which this resolution becomes effective.

*Source: ppea2021050 - 17. Article XVIII, Section 2(b) provides that “the rates at which allocations are to be*

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_Source: https://www.imf.org/-/media/files/publications/pp/2021/english/ppea2021050.pdf_