IMF Survey: IMF Injecting $283 Billion in SDRs into Global Economy, Boosting Reserves

IMF News, August 28, 2009

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Allocation equivalent to $250 billion made on August 28, 2009.
Additional special one-time allocation of $33 billion to be made on September 9, 2009.
Two allocations total roughly $283 billion.
Outstanding stock of SDRs would increase nearly ten-fold to total about $316 billion.
About $110 billion of the combined allocations will go to emerging market and developing countries, including over $20 billion to low-income countries.
The proposed general allocation was approved by the IMF’s Board of Governors on August 7, 2009; the G-20 called for the $250 billion allocation at its April summit in London.

Objective: bolster IMF members’ foreign exchange reserves and provide liquidity to the global economic system amid recession.
The allocation responds to the G-20’s call for a $250 billion general allocation.
The Fourth Amendment to the IMF’s Articles of Agreement was ratified to enable all Fund members to participate in the SDR system on an equitable basis; the amendment makes effective a special one-time allocation separate from the general allocation.
The amendment required passage through the legislatures of three-fifths of the Fund’s members, having 85 percent of the total voting power; recently amended U.S. legislation paved the way for making the amendment effective in August.

General allocations of SDRs are made as a percentage of a member’s quota; all participants receive the same percentage.
A member’s quota is based broadly on its relative size in the world economy and determines subscription to IMF capital, voting rights, and access to IMF financing.
Allocations under the special amendment are not proportional to quotas but follow a methodology to bring participants’ net cumulative allocations-to-quota ratio to a specific common benchmark.
SDRs are interest-bearing international reserve assets; there are no notes or coins denominated in SDRs.
If a member’s SDR holdings rise above its allocation, it earns interest on the excess; if it holds fewer SDRs than allocated, it pays interest on the shortfall at the official SDR interest rate.
An allocation increases members’ international reserves but does not increase the Fund’s resources available for lending.

Many emerging market, developing, and low-income countries face difficult spending choices due to the global crisis.
The allocation provides potential access to unconditional financial resources that could limit the need for adjustment through contractionary policies and allow greater scope for countercyclical policies in the face of recession and rising unemployment.
Despite receiving a smaller number of SDRs in absolute terms, low-income members will, in most cases, experience a proportionately bigger increase in reserves than advanced economies, which already have substantial reserve cushions.

SDRs can be turned into usable currencies (U.S. dollar, euro, yen, pound sterling) through voluntary trading arrangements with other IMF member countries.
The IMF acts as a broker and arranges transactions between prospective buyers and sellers of SDRs at no cost.
A number of members with sufficiently strong external positions have volunteered to establish new voluntary arrangements or expand existing ones to accommodate increased SDR transaction volumes.
If voluntary trading arrangements provide insufficient capacity, the IMF can activate a designation mechanism: members with sufficiently strong external positions are designated by the Fund to buy SDRs with freely usable currencies up to certain amounts from members with weak external positions, serving as a backstop to guarantee SDR liquidity and its reserve asset character.

Source: IMF Survey online, August 28, 2009 — "IMF Injecting $283 Billion in SDRs into Global Economy, Boosting Reserves"