## EXECUTIVE SUMMARY (Content unit _101614)

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### Key recent developments and findings
- SDR interest rate stood at just 3 basis points for the week of October 13th.
- As of October 13, the SDR interest rate was only 0.03 percent.
- Under current Rule T-1, the SDR interest rate is calculated as the weighted average of: 3-month U.S. Treasury bill, 3-month U.K. Treasury bill, 3-month Eurepo, and 3-month Japanese Treasury discount bill, rounded to the nearest basis point.
- Two basket components (three-month Eurepo and three-month Japanese Treasury discount bills) were negative; three-month U.S. Treasury bill rate was only slightly above zero.
- Market rates could decline further, which could reduce the SDR interest rate to zero or negative levels under the formula of current Rule T-1.
- Short-term outlook: policy rate normalization expected to begin in the U.K. and U.S. in 2015 but timing is uncertain; very accommodative policies expected to remain in the euro area and Japan. Forward markets anticipate a gradual rise, but markets have been wrong as the SDR interest rate continued to fall to new lows.

### Legal and financial constraints
- No authority under the Articles of Agreement for the Fund to establish a zero or negative SDR interest rate.
- Article XX (quoted in part): “1. Interest at the same rate for all holders shall be paid by the Fund to each holder on the amount of its holdings of special drawing rights. The Fund shall pay the amount due to each holder whether or not sufficient charges are received to meet the payment of interest. 2. Charges at the same rate for all participants shall be paid to the Fund by each participant on the amount of its net cumulative allocation of special drawing rights plus any negative balance of the participant or unpaid charges.”
- A zero rate would not allow for the “payments” described; a negative rate would reverse the payer-payee relationships established under the Articles.
- Article V, Section 9(a) requires the remuneration rate to be “not more than, nor less than four-fifths of, the interest rate under Article XX, Section 3,” creating inconsistency if the SDR interest rate were negative.
- Negative SDR interest rate could undermine members’ willingness to contribute quota and loan resources and undermine functioning of the SDR Department (participants might not exchange freely usable currency for SDRs if effectively charged interest on SDR holdings).

### Burden sharing mechanism: constraints and implications
- Burden sharing mechanism (established in 1986) compensates the Fund for overdue charges by generating an amount equal to lost income through equal contributions by creditor and debtor groups via reductions in remuneration and increases in charges.
- Equal burden sharing requires a minimum positive SDR interest rate to operate under current Board decisions; the SDR interest rate has fallen below that minimum.
- Constraining factors:
  - Articles require remuneration rate be no less than 80 percent of the SDR interest rate; existing Board decisions set an 85 percent floor on the adjusted rate of remuneration under burden sharing.
  - Burden sharing adjustments are not applied to interest paid on outstanding borrowing; financing mix affects total burden sharing capacity.
- Importance to Fund finances:
  - Burden sharing mechanism enables the Fund to demonstrate that on a net present value basis there is no impairment of credit outstanding despite unpaid charges.
  - If income loss exceeds burden sharing capacity, possible consequences include: asymmetrical burden sharing (debtors bearing the difference), a 70% majority Executive Board decision to add the shortfall to amounts to be generated in the subsequent quarter, or lowering the remuneration coefficient.
  - Historical precedent: “Carry forward” of a shortfall occurred on three occasions in the late 1980s when adjustment was limited by the 85 percent floor.

### Constraints on symmetric burden sharing under very low SDR interest rates
- Remuneration coefficient cannot be reduced below 85 percent of the SDR interest rate under the current burden sharing decision.
- Maximum burden sharing adjustment to the rate of remuneration equals 15 percent of the average SDR interest rate over the quarter.
- Both the SDR interest rate and the burden sharing adjustment are rounded to 2 decimal places; minimum burden sharing adjustment is 1 basis point.
- For equal burden sharing adjustments to take place in a quarter, the average SDR interest rate for that quarter must be at least 7 basis points.
- For the financial quarter ending in October, the average SDR interest rate so far has been only 6 basis points, making equal burden sharing adjustments highly unlikely under current rules.
- If symmetric operation is not possible, debtor members would be required to cover remaining unpaid charges through further (uncapped) adjustments to the rate of charge, absent Executive Board decisions.
- Historical practice in 1987–88: Executive Board upheld equal burden sharing and the 85 percent threshold and carried forward unpaid charges that could not be covered by equal burden sharing.

### Accounting and impairment considerations
- Recognition of an impairment loss is not equivalent to writing off outstanding claims against a member in arrears.
- Recognition of an impairment loss does not relieve the member of its obligations to the Fund.
- Estimated reduction in the net present value of future cash flows associated with credit outstanding in arrears must be weighed against protection provided by balances in the SCA-1 when considering whether an impairment adjustment is needed to comply with IFRS.
- A prolonged period of very low interest rates could severely hamper the ability of the burden sharing mechanism to absorb unpaid charges carried over from previous quarters and raise the question of whether credit outstanding has been impaired.

### Proposed technical amendments and policy recommendations
- Objective: Ensure SDR interest rate remains positive under all market conditions and preserve capacity for equal burden sharing to protect the Fund’s balance sheet.
- Specific proposals:
  - Set a 5 basis point floor on the SDR interest rate (0.050 percent).
  - Change rounding rules on the SDR interest rate calculation from two to three decimal places.
  - Change rounding convention and minimum adjustment in the burden sharing decision.
  - Reduce the 1 basis point minimum of the burden sharing adjustment to 0.1 basis point.
- Rationale:
  - Preserve minimal capacity of equal burden sharing.
  - Limit departures of the SDR interest rate from market rates while ensuring consistency with the Articles of Agreement and avoiding legal and financial perverse outcomes associated with zero or negative rates.

### Three approaches considered by staff (options and effects)
1) Set floor at minimum level required for equal burden sharing under current rules
- Implied floor: 7 basis points.
- Effect: SDR interest rate would rise from 0.03 percent to 0.07 percent and allow minimum 1 basis point burden sharing adjustment.
- Limitation: For current financial quarter, likely not possible to make a burden sharing adjustment without an Executive Board decision to carry forward unpaid charges.

2) Lower remuneration coefficient floor to minimum under the Articles and set SDR interest rate floor accordingly
- Minimum remuneration coefficient under Articles: 80 percent of the SDR interest rate (allowing maximum burden sharing adjustment of 20 percent).
- Under this approach, SDR interest rate floor consistent with a 1 basis point burden sharing adjustment would be 5 basis points (0.05 percent).
- Effect: Smaller adjustment from current level; likely would allow a burden sharing adjustment in the current quarter, avoiding carry forward of unpaid charges.
- Historical note: Earlier Executive Board considerations upheld the 85 percent floor to avoid fundamental rule changes.

3) Change rounding rules to 3 decimal places and set SDR interest rate floor to preserve burden sharing (staff-preferred)
- Current rounding: 2 decimal places; minimum burden sharing adjustment 1 basis point.
- Proposed: Round SDR interest rate and burden sharing adjustment to 3 decimal places; change minimum adjustment from 1 basis point to 0.1 basis point.
- With 3 decimal places, SDR interest rate floor could be as low as 0.025 percent to cover current unpaid charges, but staff prefers a slightly higher floor of 0.050 percent (5 basis points) to provide a modest buffer.
- Sensitivity: Moving from 3 to 4 decimal places increases additional burden sharing capacity by about SDR 0.33 million per year (a 6 percent increase in capacity) between SDR interest rates of 5 and 7 basis points; moving beyond 4 decimal places has almost no impact.

### Staff recommendation and implementation
- Staff proposes combining rounding convention change to 3 decimal places with introducing an SDR interest rate floor of 0.050 percent (5 basis points).
- Implementation details:
  - Amend Rule T-1 and corresponding rounding rules for calculating burden sharing adjustments and minimum adjustment (from 1 basis point to 0.1 basis point).
  - Adoption requires a 70 percent majority of total voting power under Article XX, Section 3.
- Rationale:
  - Ensures SDR interest rate is positive in line with the Articles’ prohibition on a zero or negative SDR interest rate.
  - Preserves limited capacity for equal burden sharing.
  - Limits departures from a market-determined SDR interest rate to temporary and modest effects, binding only when market-implied rate falls below the floor.

### Expected impact and quantitative parameters
- Each basis point difference between the SDR interest rate floor and the market-based calculated rate implies about SDR 8 million on an annual basis (against total expected charges in FY2015 of SDR 2.7 billion).
- Under current remunerated reserve tranche positions and principal in arrears:
  - Proposed 5 basis point floor would imply an annual burden sharing capacity of about SDR 5.2 million.
  - This provides a modest buffer over the amount currently required to offset unpaid charges (about SDR 2.8 million annually).
  - The buffer would be exhausted by a modest increase in principal in arrears corresponding to about 0.3 percent of current credit outstanding, or by a decline in credit outstanding of about 50 percent (to around SDR 41 billion), with an unchanged remunerated reserve tranche position (RRTP) to total borrowing ratio.
- If the floor is set lower (for example 2.5 basis points or as low as 1 basis point), deferred charges not met by symmetrical burden sharing would be borne asymmetrically by debtors unless the Executive Board decided otherwise; staff cautions against setting a very low floor.

### Amendments to Rule T-1 and burden sharing decision (operative text summary)
- Rule T-1(b): For each weekly period commencing each Monday, the rate of interest on holdings of SDRs shall be equal to the combined market interest rate as determined by the Fund at the beginning of the period, provided that, if the combined market rate is below 0.050 percent, the rate shall be established at 0.050 percent.
- Rule T-1(c): The combined market interest rate shall be the sum, rounded to the three nearest decimal places, of the products that result from multiplying each yield or rate listed (expressed as an equivalent annual bond yield for the preceding Friday) by the value in terms of the SDR of the amount of the corresponding currency specified in Rule O-1. If a yield or rate is not available for a particular Friday, use the latest available yield or rate.
  - U.S. dollar: Market yield for three-month U.S. Treasury bills
  - Euro: Three-month Eurepo Rate
  - Japanese yen: Three-Month Japanese Treasury Discount Bills
  - Pound sterling: Market yield for three-month U.K. Treasury bills
- Revised rounding convention: rate of charge and rate of remuneration rounded to three decimal places; an adjustment of at least 0.1 basis point shall be made to both the rate of charge and the rate of remuneration, subject to carry-forward rules.

### Operational timing and Press Release summary
- Adjustments under Section IV are to be made as of first day after each financial quarter beginning: May 1; August 1; November 1; February 1.
- Quarterly publication timing: shortly after July 31; shortly after October 31; shortly after January 31; shortly after April 30.
- Press Release No. 14/484, October 24, 2014 — Executive Board action:
  - Introduced a floor of 0.050 percent (5 basis points) for the SDR interest rate.
  - Changed rounding convention for calculating the SDR interest rate from two to three decimal places.
  - Made corresponding change in rounding convention for the burden sharing mechanism.
  - Reduced the minimum burden sharing adjustment from 1 basis point to 0.1 basis point.
- Immediate operational consequence: “In view of the prevailing interest rates today, the SDR interest rate for the next weekly period starting Monday, October 27, will be established at the floor of 0.050 percent.”
- Background: SDR interest rate underpins interest charged to members on nonconcessional IMF loans, interest paid to IMF members on remunerated creditor positions, interest paid to members on their SDR holdings and charged on their SDR allocation; determined weekly as weighted average of representative short-term market rates unless weighted average falls below 0.050 percent (5 basis points).

*Source: EXECUTIVE SUMMARY, October 16, 2014.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Key recent developments and findings
- The SDR interest rate "stood at just 3 basis points for the week of October 13th."  
- As of October 13, the SDR interest rate was only 0.03 percent.  
- Under the current Rule T-1, the SDR interest rate is calculated as the weighted average of interest rate instruments in the SDR basket (currently the 3-month U.S. Treasury bill, 3-month U.K. Treasury bill, 3-month Eurepo, and 3-month Japanese Treasury discount bill), rounded to the nearest basis point.  
- Two of the four basket components—the three month Eurepo and three-month Japanese Treasury discount bills—were negative, and the rate on the three-month U.S. Treasury bill was only slightly above zero.  
- Market rates could decline further, which could reduce the SDR interest rate to zero or negative levels under the formula of the current Rule T-1.  
- The short-term outlook is uncertain: policy rate normalization is expected to begin in the U.K. and U.S. in 2015 but timing is uncertain; very accommodative policies are expected to remain in the euro area and Japan. Forward markets anticipate a gradual rise, but markets have been wrong as the SDR interest rate continued to fall to new lows.

### Legal and financial constraints
- There is no authority under the Articles of Agreement for the Fund to establish a zero or negative SDR interest rate.  
- Article XX (quoted in part in the source) states: “1. Interest at the same rate for all holders shall be paid by the Fund to each holder on the amount of its holdings of special drawing rights. The Fund shall pay the amount due to each holder whether or not sufficient charges are received to meet the payment of interest. 2. Charges at the same rate for all participants shall be paid to the Fund by each participant on the amount of its net cumulative allocation of special drawing rights plus any negative balance of the participant or unpaid charges.” (emphasis added)  
- A zero rate would not allow for the “payments” described; a negative rate would reverse the payer-payee relationships established under the Articles.  
- Provisions regarding the ceiling and floor for the rate of remuneration of reserve tranche positions (Article V, Section 9(a)) could not be effectively applied with a zero or negative SDR interest rate. The source explains that Article V, Section 9(a) requires the remuneration rate to be “not more than, nor less than four-fifths of, the interest rate under Article XX, Section 3,” creating an inconsistency if the SDR interest rate were negative.  
- A negative SDR interest rate could have adverse implications for the Fund’s finances, including undermining members’ willingness to contribute quota and loan resources and undermining the functioning of the SDR Department (participants might not be willing to exchange freely usable currency for SDRs if effectively charged interest on SDR holdings).

### Burden sharing mechanism: constraints and implications
- The burden sharing mechanism (established in 1986) is designed to compensate the Fund for overdue charges by members in arrears (“deferred charges”) by generating an amount equal to lost income through equal contributions by creditor and debtor groups via reductions in remuneration and increases in charges.  
- Equal burden sharing requires a minimum positive SDR interest rate to operate under current Board decisions. The SDR interest rate has now fallen below that minimum level.  
- Constraining factors include:
  - The Articles require the rate of remuneration be no less than 80 percent of the SDR interest rate, while existing Board decisions set an 85 percent floor on the adjusted rate of remuneration under burden sharing. This limits equal burden sharing capacity, particularly in a low interest environment.  
  - Burden sharing adjustments are not applied to interest paid on outstanding borrowing; the financing mix in the Fund’s financing framework affects total burden sharing capacity.  
- Importance to Fund finances:
  - The burden sharing mechanism enables the Fund to demonstrate that on a net present value basis there is no impairment of credit outstanding despite unpaid charges.  
  - Should the income loss exceed burden sharing capacity, possible consequences include: asymmetrical burden sharing (debtors bearing the difference), a 70% majority Executive Board decision to add the shortfall to amounts to be generated in the subsequent quarter, or lowering the remuneration coefficient. Historical precedent: “Carry forward” of a shortfall was done on three occasions in the late 1980s when the adjustment to the rate of remuneration under burden sharing was limited by the 85 percent floor.

### Proposed technical amendments and policy recommendations
- The paper proposes technical amendments to Rule T-1 and the burden sharing mechanism to address legal, financial, and operational issues arising from very low or negative SDR interest rates. Specific proposals include:
  - Setting a 5 basis point floor on the SDR interest rate.  
  - Changing the rounding rules on the SDR interest rate calculation.  
  - Changing the rounding convention and the minimum adjustment in the burden sharing decision.  
  - Reducing the 1 basis point minimum of the burden sharing adjustment to 0.1 basis point.  
- Rationale for proposals:
  - These measures would preserve a minimal capacity of equal burden sharing aimed at protecting the Fund’s balance sheet.  
  - They would limit potential departures of the SDR interest rate from market interest rates while ensuring consistency with the Articles of Agreement and avoiding legal and financial perverse outcomes associated with zero or negative rates.

### Institutional and procedural points
- Under Article XX, Section 3 the Fund shall determine the rate of interest on SDR holdings by a 70% majority of the total voting power; the rate of charges on net cumulative allocations of SDRs shall be equal to the rate of interest.  
- Rule T-1 defines the methodology for calculating the SDR interest rate as a weighted average of representative market interest rates for the four basket currencies, set for weekly periods commencing each Monday based on market interest rates of the previous Friday, and rounded to the nearest basis point.  
- Rule I-10 sets the rate of remuneration at 100% of the rate of interest on SDR holdings under Rule T-1.  
- Article V, Section 9(a) links the rate of remuneration to the SDR interest rate by requiring the remuneration rate to be “not more than, nor less than four-fifths” of the SDR interest rate.  
- The burden sharing Executive Board Decision No. 12189-(00/45) limits the adjustment to the rate of remuneration to not exceed 15 percent of the SDR interest rate under current arrangements.

*Source: EXECUTIVE SUMMARY, October 16, 2014.*

### Box 1. The Burden Sharing Mechanism and the Fund’s Finances (concluded)

### Box 1. The Burden Sharing Mechanism and the Fund’s Finances (concluded)

### Constraints on symmetric burden sharing under very low SDR interest rates
- The remuneration coefficient cannot be reduced below 85 percent of the SDR interest rate under the current burden sharing decision; this is slightly higher than the 80 percent floor established under the Articles.
- Maximum burden sharing adjustment to the rate of remuneration equals 15 percent of the average SDR interest rate over the quarter.
- Both the SDR interest rate and the burden sharing adjustment are rounded to 2 decimal places, and the minimum burden sharing adjustment is currently set at 1 basis point.
- For equal burden sharing adjustments to take place in a quarter, the average SDR interest rate for that quarter must be at least 7 basis points.
- For the current financial quarter ending in October, the average SDR interest rate so far has been only 6 basis points, making equal burden sharing adjustments highly unlikely under current rules.
- If symmetric operation is not possible, the burden sharing decision requires review if the remuneration coefficient would fall below the 85 percent floor; absent Executive Board decisions, debtor members would be required to cover remaining unpaid charges through further (uncapped) adjustments to the rate of charge, producing asymmetric burden sharing.
- Historical practice in 1987–88: Executive Board upheld equal burden sharing and the 85 percent threshold and carried forward unpaid charges that could not be covered by equal burden sharing.

### Accounting and impairment considerations
- Recognition of an impairment loss is not equivalent to writing off the outstanding claims against the member in arrears.
- Recognition of an impairment loss does not relieve the member of its obligations to the Fund.
- The estimated reduction in the net present value of future cash flows associated with credit outstanding in arrears would need to be weighed against protection provided by balances in the SCA-1 when considering whether an impairment adjustment is needed to properly comply with IFRS.
- A prolonged period of very low interest rates could severely hamper the ability of the burden sharing mechanism to absorb unpaid charges carried over from previous quarters and would raise the question of whether credit outstanding has been impaired.

### Proposed rule changes: objectives and required amendment
- Objective: Ensure the SDR interest rate will remain positive under all market conditions and preserve capacity for equal burden sharing to protect the Fund’s balance sheet.
- Change required: Amendment to Rule T-1 to introduce a minimum positive floor for the SDR interest rate. Amending Rule T-1 requires a decision by the Executive Board with a 70 percent majority of the total voting power (Article XX, Section 3), and would be submitted to the Board of Governors for review at the next regular meeting (Section 16 of By-Laws).
- Staff explored options for setting a modestly higher floor while limiting departures from a market-based rate.

### Three approaches considered by staff
1) Set the floor at the minimum level required to allow equal burden sharing under current rules
- Implied floor: 7 basis points.
- Effect: SDR interest rate would rise from its current level of 0.03 percent to 0.07 percent and allow the minimum 1 basis point burden sharing adjustment to the rates of remuneration and charge.
- Limitation: For the current financial quarter, it will most likely not be possible to make a burden sharing adjustment to the rate of remuneration without an Executive Board decision to carry forward unpaid charges.

2) Lower the floor on the remuneration coefficient to the minimum possible under the Articles and set the SDR interest rate floor accordingly
- Minimum remuneration coefficient under the Articles: 80 percent of the SDR interest rate (allowing a maximum burden sharing adjustment of 20 percent of the SDR interest rate).
- Under this approach, the SDR interest rate floor consistent with a 1 basis point burden sharing adjustment would be 5 basis points (0.05 percent).
- Effect: Smaller adjustment in the SDR interest rate from its current level; likely would allow a burden sharing adjustment to be made to the rate of remuneration in the current financial quarter, avoiding the need to carry forward unpaid charges.
- Historical note: Earlier Executive Board considerations upheld the 85 percent floor to avoid fundamental rule changes.

3) Change rounding rules to 3 decimal places and set an SDR interest rate floor to preserve burden sharing
- Current rounding: 2 decimal places for both SDR interest rate and burden sharing adjustment; minimum burden sharing adjustment 1 basis point.
- Proposed change: Round both the SDR interest rate and burden sharing adjustment to 3 decimal places; change minimum adjustment from 1 basis point to 0.1 basis point.
- With 3 decimal places, the SDR interest rate floor could be as low as 0.025 percent to cover the current level of unpaid charges, but this would not be robust to changes in key parameters; staff prefers a slightly higher floor of 0.050 percent (5 basis points) to provide a modest buffer.
- Staff sensitivity: Going from 3 to 4 decimal places increases additional burden sharing capacity by about SDR 0.33 million per year (a 6 percent increase in capacity, keeping all else constant) between SDR interest rates of 5 and 7 basis points; moving beyond 4 decimal places has almost no impact on capacity.

### Staff recommendation and implementation
- Staff proposes the third approach: combine changing rounding conventions to 3 decimal places for the SDR interest rate and burden sharing adjustment with introducing a floor on the SDR interest rate of 0.050 percent (5 basis points).
- Implementation details:
  - Amend Rule T-1 and corresponding rounding rules for calculating burden sharing adjustments and the minimum adjustment (from 1 basis point to 0.1 basis point).
  - Adoption requires a 70 percent majority of total voting power.
- Rationale:
  - Ensures SDR interest rate is positive in line with the Articles’ prohibition on a zero or negative SDR interest rate.
  - Preserves a limited capacity for equal burden sharing to protect the Fund’s balance sheet.
  - Limits departures from a market-determined SDR interest rate to temporary and modest effects, binding only when market-implied SDR interest rate falls below the floor.

### Expected impact and quantitative parameters
- Marginal impact when the floor is triggered: each basis point difference between the SDR interest rate floor and the market-based calculated rate would imply about SDR 8 million on an annual basis (against total expected charges in FY2015 of SDR 2.7 billion).
- Under current remunerated reserve tranche positions and principal in arrears:
  - The proposed 5 basis point floor would imply an annual burden sharing capacity of about SDR 5.2 million.
  - This provides a modest buffer over the amount currently required to offset unpaid charges (about SDR 2.8 million annually).
  - The buffer would be exhausted by a modest increase in principal in arrears corresponding to about 0.3 percent of current credit outstanding, or by a decline in credit outstanding of about 50 percent (to around SDR 41 billion), with an unchanged remunerated reserve tranche position (RRTP) to total borrowing ratio.
- If the floor is set lower (for example 2.5 basis points or as low as 1 basis point), deferred charges not met by symmetrical burden sharing would be borne asymmetrically by debtors unless the Executive Board decided otherwise; staff cautions against setting a very low floor as it could set a precedent for asymmetrical burden sharing adjustments.

### Additional context: SDR interest rate determination (brief history)
- The Executive Board reviews SDR valuation instruments and SDR interest rate determination as part of regular reviews of the SDR valuation basket; last review concluded in late 2010.
- Under the First Amendment, the SDR interest rate was controlled by the rate of remuneration with specified bounds and the rate of remuneration could be modified within 1–2 percent per annum by Executive Board decision.
- Following the Second Amendment, the SDR interest rate was progressively aligned to market-determined rates; quarterly interest rate resets were introduced in 1976 and the SDR interest rate was progressively increased from 60 percent to 100 percent of the combined market interest rate between 1976 and 1981; official SDR interest rate has been reset on a weekly basis since July 1983.
- The Second Amendment made the SDR interest rate control the rate of remuneration: Article V, Section 9(a) states the rate of remuneration cannot exceed the rate of interest on the SDR and cannot be lower than 80 percent of that rate.
- The Articles provide broad discretion to determine the SDR interest rate taking into account, inter alia, the purposes of the Fund and the role of the SDR in the international monetary system, but less flexibility exists for setting the rate of remuneration.

*Source: Box 1. The Burden Sharing Mechanism and the Fund’s Finances (concluded).*

### 1.      Rule T-1(b) and (c) shall be amended to read as follows:

### 1.      Rule T-1(b) and (c) shall be amended to read as follows:

### Amendments to Rule T-1: Interest on SDR holdings
- (b) For each weekly period commencing each Monday, "the rate of interest on holdings of SDRs for each weekly period commencing each Monday shall be equal to the combined market interest rate as determined by the Fund at the beginning of the period in the manner described in (c) below, provided that, if the combined market rate is below 0.050 percent, the rate shall be established at 0.050 percent."
- (c) "The combined market interest rate shall be the sum, rounded to the three nearest decimal places, of the products that result from multiplying each yield or rate listed below, expressed as an equivalent annual bond yield, for the preceding Friday by the value in terms of the SDR on that Friday of the amount of the corresponding currency specified in Rule O-1, as determined pursuant to Rule O-2(b). If a yield or rate is not available for a particular Friday, the calculation shall be made on the basis of the latest available yield or rate."
  - U.S. dollar: Market yield for three-month U.S. Treasury bills
  - Euro: Three-month Eurepo Rate
  - Japanese yen: Three-Month Japanese Treasury Discount Bills
  - Pound sterling: Market yield for three-month U.K. Treasury bills

### Revised Rule T-1 (Annex, redlined)
- (a) Interest and charges in respect of SDRs shall accrue daily at the rate referred to in (b) below. The amount that has accrued during each quarter of the financial year of the Fund shall be paid promptly as of the beginning of the following quarter. The accounts of participants shall be credited with the excess of interest due over charges or debited with the excess of charges over the interest due. The accounts of holders that are not participants shall be credited with the interest due.
- (b) Restates the floor provision: if combined market rate is below 0.050 percent, establish rate at 0.050 percent.
- (c) The combined market interest rate shall be the sum, rounded to the two three nearest decimal places, of the products ... (text specifies rounding change from two to three decimal places).
- (d) Deleted.

### Rounding convention and burden sharing adjustments (Decision No. 12189-(00/45) amendments)
- Section IV, Paragraph 2(d) revised: "Notwithstanding Paragraph 1 (a) above, the rate of charge and the rate of remuneration determined under this section shall be rounded to three decimal places, provided that an adjustment of at least 0.1 basis point shall be made to both the rate of charge and the rate of remuneration, subject to subparagraph (e) below."
- In redlined annex text (Section IV):
  - Paragraph 2(d) originally: "the rate of charge and the rate of remuneration determined under this section shall be rounded to two three decimals places, provided that an adjustment of at least one 0.1 basis point shall be made to both the rate of charge and the rate of remuneration, subject to subparagraph (e) below."
  - Paragraph 2(e) describes carry-forward of any excess or shortfall from the rounding adjustment to the following quarterly period; no adjustment if excess equals or exceeds needed amount.

### Operational timing for adjustments (Section IV(c))
- Adjustments under Section IV are to be made as of the first day after each financial quarter beginning:
  - May 1, August 1, November 1 and February 1
  - Quarterly publication timing:
    - shortly after July 31 for the period May 1 to July 31;
    - shortly after October 31 for the period August 1 to October 31;
    - shortly after January 31 for the period from November 1 to January 31;
    - shortly after April 30 for the period from February 1 to April 30.

### Press Release summary (Press Release No. 14/484, October 24, 2014)
- Executive Board action:
  - Introduced a floor of 0.050 percent (5 basis points) for the SDR interest rate.
  - Changed rounding convention for calculating the SDR interest rate from two to three decimal places.
  - Made corresponding change in rounding convention for the burden sharing mechanism.
  - Reduced the minimum burden sharing adjustment from 1 basis point to 0.1 basis point.
- Immediate operational consequence:
  - "In view of the prevailing interest rates today, the SDR interest rate for the next weekly period starting Monday, October 27, will be established at the floor of 0.050 percent."
- Background points:
  - The SDR interest rate underpins:
    - interest charged to members on nonconcessional IMF loans from the IMF’s general resources,
    - interest paid to IMF members on remunerated creditor positions in the IMF (reserve tranche positions and claims under borrowing agreements),
    - interest paid to members on their SDR holdings and charged on their SDR allocation.
  - The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term financial debt instruments in the money markets of the SDR basket currencies, except if the weighted average falls below the floor of 0.050 percent (5 basis points).
  - Under the burden sharing mechanism, debtor and creditor members as a group share equally the cost of unpaid charges on outstanding IMF credit through adjustments to the rates of charge and remuneration.

### Key numeric values and exact terms preserved
- Floor for SDR interest rate: 0.050 percent
- Floor described also as: 5 basis points
- Rounding precision change: from two to three decimal places
- Minimum burden sharing adjustment changed from: 1 basis point to 0.1 basis point
- Effective press release date: October 24, 2014
- Weekly period reference: next weekly period starting Monday, October 27
- Quarterly adjustment schedule dates and publication timing: May 1; August 1; November 1; February 1; shortly after July 31; shortly after October 31; shortly after January 31; shortly after April 30.

*Source: _101614 - 1.      Rule T-1(b) and (c) shall be amended to read as follows:*

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